Asia's seaborne thermal coal market unexpectedly took off in June on a sudden surge in demand from Chinese buyers including large power utilities after a relatively subdued May. In this podcast, senior editor Michael Cooper joins editor Michelle Zhao in examining what's driving coal buyers in China to bid higher for cargoes from Australia and Indonesia, and other factors that could drive or drag down price movements for the rest of the year.
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Michelle Zhao: Hello, and welcome to another podcast from Platts Asia thermal coal team. I am Michelle Zhao, editor for thermal coal in Asia. Today I am joined by Mike Cooper our editor from Perth, Australia who is in Singapore this week to discuss some interesting developments in the Asia thermal coal markets.
What are the latest developments in the Newcastle thermal coal market?
Michael Cooper: Market participants have been surprised by a quick turnaround in prices for Newcastle high-ash thermal coal in the past few weeks. Towards the end of May it looked like prices in this market were succumbing to their usual seasonal downswing. We had trade volumes and activity slowing in the lead up to and following China’s Dragon Boat festival holiday in late May. And some in the market were quite despondent, believing the Asia seaborne trade was in a drawn-out decline that might continue for the rest of the year.
Buying interest got down to as low as $59/mt FOB Newcastle, basis 5,500 NAR, for July cargoes – a nine-month low. This was equivalent to a delivered China price of about $68/mt CFR. Importantly, Australian thermal coal prices fell to a level that was $7-10 lower than equivalent calorific value Indonesian coal – an indication in the eyes of some traders that the Newcastle high ash market was oversold.
Driving prices lower was a plummeting domestic thermal coal market in China where FOB Qinhuangdao prices for the 5,500 NAR grade slumped to only Yuan 555/mt, and the lowest since last September. This price for domestic coal was close to the 2017-year term contract price agreed between Chinese utilities and coal producers at Yuan 535/mt FOB, and generally seen as the domestic market’s rock bottom.
Then, just as traders were ready to throw in the towel, something dramatic happened. Newcastle prices started to rally. There were signs in China of rising thermal coal consumption by power plants, responding to air-conditioning demand on warmer temperatures, and some supply tightness for domestic coal.
Some early movers took positions in the Newcastle 5,500 NAR market, booking July loading shipments at the port. They were joined by more Chinese traders catching on to the rising demand, and finally we saw large end users in China coming on to the market to restock in large volumes. All this fresh demand pushed Newcastle high ash cargo prices to $70/mt FOB, and the rally is still continuing this week.
MZ: How has the new Platts price assessment for Japan and Korea been performing?
MC: Platts has a new daily price assessment for the NorthEast Asia market that includes Japan and Korea and this is the NEAT coal index.
The index was first published in early January, and now has six months of price history. What this shows is that demand from Japan rose quite strongly in March in the lead up to the annual April benchmark price negotiations.
Quite a number of Japanese power companies came to the market with tenders for Australian spot cargoes in order to test the level of prices in the market. Added to this, there was a rally in freight prices for Post-Panamax and Panamax ships in the Asia market that broke through $10/mt and went on to peak at $12.50/mt in late March.
Platts separately tracks freight for Panamax vessels sailing from Newcastle, Australia to Japan as part of the NEAT price. The NEAT price climbed to its highest since its launch at $95/mt CFR Kinuura in early April, just before price settlements started to come through for the 2017-2018 Japanese fiscal year.
Lead Japanese price negotiator Tohoku Electric tucked away some term contract deals with Australian coal producers in late April at prices ranging $80-$84/mt FOB Newcastle on a 6,300 GAR basis. Australia’s largest coal miner Glencore held out longer for higher prices than this, but eventually settled in early May at $84.97/mt FOB for its deliveries to Tohoku over the fiscal year and backdated to April 1.
The index is assessed on a 5,750 kcal/kg NAR and 15% ash basis, and covers thermal coal cargoes shipped from Australia, Colombia, Indonesia, Russia and South Africa to customers in Japan, Korea and Taiwan. For normalization purposes the NEAT coal index is focused on the Japanese port of Kinuura. cargoes over the April-October period. The market has now has settled down and buyers in Japan are waiting for the April benchmark price to emerge from current talks.
How have Indonesian spot prices been trading for the last two months, and what is their price direction?
MZ: Indonesian coal prices saw a downtrend in mid-March when Chinese buyers backed away from rising prices. They decided to wait for the market to cool down following its steady increase since January. But, similar to Newcastle, just when people seemed to have accepted that the market was not going to see a repeat of last year’s surprising spike, Chinese power utilities put out tenders for June cargoes and injected life back into the market.
This, combined with unexpected rains in Indonesia that once again trimmed production and limited supply, heated up prices. FOB Kalimantan 4,200 GAR hit bottom at $35.75/mt FOB in mid-May, and has since rallied to its current level of $42.50/mt FOB.
People are wary though of the sustainability of this price hike. Many expect Chinese demand to increase near term, as the country goes into its summer season. Its hydropower output is down compared to last year, and people are keeping an eye on any government intervention that can affect the market trend.
MC: Thank you Michelle. 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.