A number of Japanese power companies are understood to have achieved satisfactory results from test-firing a blend of Newcastle high-ash 5,500 kcal/kg and 6,000 kcal/kg NAR thermal coal in their coal-fired plants' boiler systems, said market sources Thursday.
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Volumes used in Japanese coal plants in the first half of this year have varied from one or two Panamax cargoes of Newcastle 5,500 kcal/kg NAR thermal coal for some Japanese power utilities, to around 500,000 mt in the case of other utilities, said sources.
Trade sources described this move as a significant market development, as it showed some Japanese buyers are willing to vary their buying from the typical specification for Japan of Newcastle 6,300 kcal/kg GAR thermal coal. Newcastle 6,300 kcal/kg GAR is close to Newcastle 6,000 kcal/kg NAR.
The Japanese utilities' use of a hybrid blend of Newcastle 5,500 and 6,000 kcal/kg NAR thermal coal in their power plants closely matches the 5,750 kcal/kg NAR specification for S&P Global Platts' Northeast Asia Thermal Coal Index, or NEAT, which reflects the price of Newcastle cargoes delivered to Japan's Kinuura port.
Platts' NEAT Coal Index was $68.37/mt CFR Japan on Wednesday, its lowest level since its launch in early January 2017.
High-ash Newcastle 5,500 kcal/kg NAR thermal coal does have some drawbacks for Japanese power plants in terms of higher ash disposal costs compared with the Newcastle 6,000 kcal/kg NAR grade, but its price is cheaper.
One source close to the Japanese market said it was not unusual for some companies in Japan to consume Newcastle 5,500 kcal/kg NAR thermal coal.
This is partly because of the large spread between prices for the two grades, which surged to a record $55/mt in August 2018 but was down to around $16.50/mt this week, he said.
He went on to add that Japanese buyers would likely use Newcastle 5,500 kcal/kg NAR thermal coal to blend with Newcastle 6,000 kcal/kg NAR to create a hybrid product.
"I believe at first they will use [Newcastle 5,500 NAR] with 6,000 NAR coal," he said.
Estimates in trading circles are that Newcastle 5,500 kcal/kg NAR thermal coal could displace up 2 million mt of Newcastle 6,000 kcal/kg NAR grade coal in the Japanese market.
Activity in the Newcastle 5,500 kcal/kg NAR thermal coal market was sluggish Thursday with only a handful of buyers expressing interest for July-loading Capesize cargoes of this grade, said sources.
Their buying interest for July shipments of high-ash thermal coal was heard at around $50/mt FOB Newcastle following a trade for a July Capesize cargo at $50.50/mt on the sidelines of this week's coal industry gathering in Bali, Indonesia.
Few offers for Newcastle 5,500 kcal/kg NAR thermal coal were seen in Thursday's trading session for Asia, said sources, who described the market as bearish.
In the screen-traded market for Newcastle 6,000 kcal/kg NAR thermal coal, a September-loading parcel for 25,000 mt traded at $70/mt FOB on globalCOAL in Asia trade.
This price is down $1.50 from a screen trade at $71.50/mt FOB Newcastle 6,000 kcal/kg NAR, also for a September shipment of 25,000 mt, last Friday.
-- Michael Cooper, email@example.com
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