China and Northeast Asian thermal coal importing countries are preparing their restocking strategies for the upcoming northern hemisphere winter. Buyers are expected to start to carefully play their cards in the coming weeks. In the lead-up to this critical time for the Asia seaborne market, S&P Global Platts market editors Michael Cooper, Hui Min Lee, and Arusha Das discuss the latest price trends.
The following Platts assessments were discussed in this podcast:
Huimin Lee (HL): Hello, and welcome to this episode of Commodity Spotlight podcast. I am Huimin, and I recently joined Platts' thermal coal team in Singapore as an editor focusing on the Chinese market.
Today I am joined by Mike Cooper, our senior editor in Perth, and Arusha Das, who covers the Indonesian market from our Singapore office, to discuss some interesting developments in the Asia thermal coal markets.
Mike, what has happened to import prices at Chinese ports for thermal coal?
Michael Cooper (MC): Thanks, Huimin. Delivered South China prices have pretty much been in freefall since June. They have followed domestic prices lower. But this week, the market has reversed, and prices have started to go up.
Platts' PCC 8 price for 5,500 NAR Australian thermal coal delivered into south China had plummeted to $76/mt CFR by Friday, from $90/mt back in June. It has now edged up a little to $78/mt on some spot demand. While the PCC 7 price for the 4,700 NAR grade of Indonesian coal had dropped to $60/mt on Friday, from $77/mt in June. $70 and $60 are key support levels for both prices.
Import demand has been severely curtailed by the stealthy introduction of import controls at Chinese ports. The official reason for these import controls is that end users have already exhausted their allocated quotas for imported thermal coal at this stage in the year. A similar situation occurred last year. Unofficially, it appears that authorities want to shield the domestic coal market from competition from imports which are cheaper than Chinese thermal coal despite added shipping costs. People are expecting China's ports to reopen to imports in November or December, before the onset of winter conditions, and this is stimulating some restocking interest.
Domestic prices for China have been moving higher, we heard.
HL: That's right, Mike. Domestic prices for 5,500 NAR grade coal have been going up to 635 yuan per metric ton FOB Qinhuangdao last week, but not before coming down again, trading at the high 620 Yuan level this week.
The current import restrictions have been cited as one of the reasons that have boosted prices for this grade. Australian 5,500 NAR cargoes were particularly hard hit by the import controls, and with quota limitations for local buyers, they turn to domestic market to meet their short-term demand.
Secondly, safety checks at mine sites and mine closures had kept supply in check. Logistics costs in China have been rising, and this too, contributed to higher FOB port prices.
However, demand from power plants is still soft. It's been observed that cement producers and industry users are those in the market right now, but they aren't buying in large volume. So, generally, buying sentiment is cautious and it's likely to pick up only after the week-long holiday in early October.
Now let's look at Indonesia. What's been happening in that market lately Arusha?
Arusha Das: Sure. The 4,200 GAR grade of Indonesian thermal coal has stabilized a bit after prices saw a steep fall over the past two months. It is currently around $38-$39/mt FOB. Some revival in Chinese and Indian buying breathed some life back into the market.
However, the sustainability of this is still under question given the upcoming holidays in China and yet to be relaxed import quotas. Steadily building demand from India as a part of post monsoon restocking and some tenders from the utilities might also lend some support.
It will be interesting to note that some miners have booked their shipments for their domestic market obligation for the last quarter, which is monsoon season in Indonesia as well. This might be an area of concern for buyers going ahead.
For the 5,000 GAR grade of Indonesian thermal coal, spot prices are still under duress due to a lack of interest. Currently at $52.50/mt FOB, it clocked a drop of around 7% over past month. However, renewed buying from India might be able to cancel the correction.
Meanwhile, the market is nearing a glut situation. Some traders holding back anticipating strong demand in September back fired. This coincided with the dry season in Indonesia, the supply is plenty.
HL: Going back to you Mike, what's the latest on the Platts NEAT price assessment for Japan and Korea?
MC: The NEAT or the NorthEast Asia Thermal coal price index has been in a downtrend since hitting $103/mt CFR Japan in mid-June. This high point coincided with a spike in Newcastle 5,500 NAR prices around the same time at $83/mt FOB. Panamax freight to Japan also jumped to a high of $15/mt in July, feeding strength into delivered prices for Japan.
Large Japanese buyers came out with tenders for Australian thermal coal in July, following the settlement of remaining outstanding April term contracts at $110/mt FOB Newcastle. Buyers booked quite a few Australian Panamax cargoes for delivery in Q4 and Q1 2019 at prices ranging $103-$108/mt FOB Newcastle. This is for the 6,000 NAR grade of Newcastle thermal coal.
Since early September, NEAT prices have been recovering on firmer Newcastle 5,500 NAR prices, and are now trading at around $88/mt CFR Japan, according to Platts prices.
HL: Thank you Arusha and Mike. You can read more about the latest developments in the Asia-Pacific thermal coal markets in Coal Trader International and on the Platts website. Until next time. Goodbye.