As has been the case for several years now, coal industry participants are hoping that China will lead the way when a sustainable economic recovery finally arrives after such a long period in the doldrums. Market activity has been more visible in Asia compared to other regions and it has grown to be the most dynamic area for coal business now. Last year was a challenge for all coal sector players, with the unexpected decline seen during the first half of the year eventually seeing some improvement during the final months of 2012. Markets eased around the holiday period and this year has got off to a sluggish start, with lacklustre demand coinciding with supply disruption in key producing countries including Australia, Indonesia, and Colombia. This has helped to keep prices for thermal and coking coal relatively steady during the first quarter of 2013.

During the past month or so, thermal coal spot markets have been a little softer in most producing countries, although supply constraints continued to keep Colombian prices up. The Asian markets have, however, fared better than other regions during the past year. Despite this, at the time of writing, Rio Tinto and Xstrata are understood to be reducing their workforces by a further 100 employees each. Xstrata is to close its office in Brisbane. Xstrata has reported a 37% decrease in attributable profit in 2012. The total of US$3.652bn compared with US$5.785bn in 2011. The downturn in the global economy is still having an impact on the international coal industry, and although some Australian exporters are expecting a difficult year in 2013, they are also aware that they have been in that position before, and were able to weather the storm. 
In the Australian coking coal market, agreement has finally been reached on the next quarterly contract terms. Supply is expected to tighten during the remainder of H1 2013, and there is speculation that spot prices will have risen by the end of June after shippers move to cut costs further amid relatively weak demand from Asia. This settlement has had a knock-on effect elsewhere, and has resulted in some firming in the Atlantic spot market for hard coking coal. Supply of coking coal and PCI (pulverized coal injection) product in Canada is also set to tighten in the coming months. The quarterly contract price of PCI product has been reported as US$141/t FOB (free on board), and is expected to increase by the start of Q3 2013 due to production cuts. Thermal coal spot prices have been generally weaker around the world, but with some firmness seen in South America and Richards Bay at the time of writing in late March. Supply disruptions in Australia due to bad weather, and maintenance on the Hunter Valley rail network have tightened supply recently, but this has not led to a firming of the spot market there. Other Asian thermal coal markets have also softened at the time of writing. 

The latest quarterly contract terms for Australian hard coking coal have been settled by BHP Mitsubishi Alliance with its customers in Japan. The premium Peak Downs brand has been priced at US$172/t FOB with other brands priced at lower levels due to quality adjustments. There had been speculation that the reference brand would be settled at US$170/t FOB and the actual outcome is close to that level, with the Goonyella brand reported to be priced at US$169/t FOB.

Shippers are believed to have persuaded the buyers that prices any lower than this would lead to even more cuts in production as overall costs are reported to be approaching US$170/t on average. In India, the quarterly contract price of the Australian premium hard coking coal brand has been settled at US$172/t FOB between BHP Mitsubishi Alliance and the Indian steel mills. 

Supply is now expected to tighten during the coming months as shippers move to save costs at some operations. At the time, the indicator price for the reference brand in the spot market was unchanged week on week at US$170/t FOB. Some journalists are said to be using the US$169/t FOB figure for this indicator price, perhaps unaware that the quarterly contract market is different from the prompt spot market.

In recent market activity, the price of Chinese 12% ash metallurgical coke still appears to be priced out of the market, although there has been a small decrease to about US$368/t FOB which would be the lowest number suggested by traders at present. Although the price of the quarterly contract tonnage for hard coking coal has been settled at a rather steady level, the price of metallurgical coke in the international markets has softened during the course of March. For comparison, Japanese 12% ash material is priced as low as US$330/t FOB which reflects a decrease of some US$10/t over the course of the month. Colombian 12% ash coke is priced at US$325/t FOB which indicates a similar decrease in price during March.

Coal infrastructure development in Australia is progressing where Aurizon has signed a proposal to acquire 51% of Hancock Coal Infrastructure through the development of the Galilee Basin coal resource in Queensland. New rail and port infrastructure is a key requirement for future coal projects to proceed. Aurizon has also signed a contract with Xstrata to haul 14.6mtpa (million tonnes per annum) of coal from the Rolleston mine to Gladstone until 2025. The contract begins as soon as the new Wiggins Island Coal Terminal is completed, and by

December 2014 in any case. Meanwhile, repairs to the Moura rail line serving the Bowen Basin mines were completed and the line re-opened on 11 March. Heavy rains and flooding knocked out the service for two weeks, disrupting coal haulage to the ports, with hard coking coal shipments delayed. In New South Wales, the vessel queue at Newcastle has been decreasing in March, with 13 ships reported in the middle of the month compared with 21 a week

earlier. Waiting times were down to about four days. Meanwhile, an environmental impact assessment for Abbot Point Coal Terminal has been completed in early March which will act as a reference for future development. Also, in recent Australian company news,Whitehaven Coal is understood to have received an average price of US$92/t FOB for its combined coking and thermal coal brands during the second half of 2012. Sales totalled 3.32mt (million tonnes).

In India where growth in demand for imported coal has been expected for some time now, Bothra Shipping expects its expansion at the Kakinda coal facility to be operational by May, with Berth No 6 being commissioned. The dedicated coal berth will have a capacity of 8mtpa and will ramp up this year. Growth in China continues with the latest consumer price data showing an increase of 3.2% in February compared to the same month last year. This is the highest rate of growth since last April.

The Asian utilities have been the most visible in the spot tender markets around the world this year so far. In Korea in March, Kowepo issued a tender seeking 140kt of coal in two Panamax cargoes to supply the Taean power station. Specifications include CV 5,100kcal/kg NAR (min). Delivery is required during 25 April to 15 June. Komipo has issued an LT tender seeking 520ktpa of bituminous coal for delivery to the Boryeong power station. Specifications include CV 5,700kcal/kg NAR (net as received) (min) and delivery is required during 2013–2015. Komipo has also issued a spot tender seeking up to 230kt of coal with CV 4,600kcal/kg NAR (min). Delivery is required during May to June.

Indian buyers are understood to have returned to the Richards Bay spot market following the clarification of new import duties on coal to India, and a number of talks are understood to have been conducted at the recent Coaltrans India conference. The cement sector was particularly interested in the higher ash material available this year.

Transport issues for hard coking coal in Australia have been resolved following disruption due to bad weather, and supply has been improving. Buyers appeared to have been waiting for these conditions during the talks on the next quarterly contracts, to enable them to strengthen their case for a lower price than the US$175/t FOB reportedly being sought by the exporters at that time.

Bad weather disrupted vessel berthing at Dalrymple Bay Coal Terminal where operations came to a halt on 4 March

as coal loading was not possible. The turnaround in Chinese demand for coal that was hoped for after the new year holiday has not yet been reported by the shippers, and supply now appears to be more available despite disruption at Dalrymple Bay. These conditions are not putting upward pressure on the price, but there is limited downward pressure as well. Rumours suggest Japan’s Tohoku EPC has been making enquiries about increased supply of coal this year. Australian traders at Newcastle suggested substantial tonnage could be required.

In general, the spot price of metallurgical coke has been softening this year, although international export market activity

by China has been limited. The price differential with competitor countries has narrowed since the removal of the export duty at the start of this year, and the higher quality characteristics of Chinese coke could persuade buyers to return in larger numbers in the coming months. The spot price of 12% ash material at about US$375/t FOB in early March compares with a price closer to US$500/t FOB not so long ago. A price for Chinese material is, however, theoretical in the absence of confirmed deals in the international market. Back with the Koreans and in the Vietnamese market, Daishin

is understood to have been awarded 20kt of the business by Kosep following its tender seeking 70kt of anthracite. The Vietnamese material is estimated to have been priced at about US$102/t FOB. Delivery was

required during 19–24 March. Earlier this year, the anthracite tender by EWP resulted in 50kt of Vietnamese material being purchased for delivery during February to July. The seller was reported to be YongKwang Global, and’s analysis suggested the delivered price was a little less than the China Spot Price for thermal coal on an equivalent CV basis. This suggested a price of about US$96-97/t FOB basis 6,700kcal/kg GAD (gross air dried). Reports elsewhere at lower prices would be based on a lower CV.

In Taiwan in early March, Formosa Plastics issued five tenders seeking a total of 1.92mt of bituminous coal. A 200kt contract sought coal with CV 6,000kcal/kg GAR (min) for delivery during 16 May to 31 July. A 250kt contract sought coal also with CV 6,000kcal/kg GAR (min) for delivery during 1 April to 31 July, and 1.05mt of similar CV material was also sought for delivery during 1 May to 30 July. Two contracts for 210kt each were offered for coal with CV 5,850kcal/kg GAR (min) and delivery was required during 1 April to 30 June.

The Indonesian coal industry has not been without weather-related impacts this year either. Heavy rainfall has been disrupting movement of coal to the ports in Kalimantan in February and March. Shiploading has also been slowed, particularly for

the lower CV material at Banjarmasin. Meanwhile in Australia, the recent floods in Queensland had led to allegations that a number of coal mines had breached environmental regulations by releasing water into the Fitzroy River catchment.

Kowepo issued a tender seeking 140kt of coal in February after cancelling its previous tender seeking 70kt when offers were not attractive. Meanhwile, EWP was reported to have awarded the business to two Indonesian shippers following its tender seeking a total of 150kt of coal for the Dangjin power station. The price for 70kt of material with CV 4,600kcal/kg NAR (min) was rumoured to be around US$77.50/t FOB

adjusted to basis 6,700kcal/kg GAD. Delivery is required during April to May. At that time,Taipower issued a tender seeking 900kt of coal with specifications including CV 5,000kcal/kg GAR (min). Delivery is required during May to August.

After a few weeks into 2013, thermal coal spot markets were seeing mixed conditions, with key areas including China seeing a decrease in the price of domestic coal. This had coincided with the general firming in the international spot market noted towards the end of 2012. Tightness in the Indonesian spot market due to the impact of heavy rainfall in Kalimantan, as well as a government crackdown on illegal mining

was expected to serve to keep prices firm. This may be true for India and some other Asian markets, but the Chinese interest had eased a little due to their lower domestic prices at that time.

Steel production increased in China, Germany, and Japan in January compared to the same month last year, suggesting a recovery could be seen this year. World output also appeared to have increased overall, by about 0.8% during January. Meanwhile, flood damage to the rail system in Queensland this year is understood to have taken around 4mt of coking coal supply out of the market.

In February, the visibility of the Asian utilities had been continuing. Korea’s Kospo issued a tender seeking 272kt of coal with specifications including CV 4,500kcal/kg NAR (min). Delivery is required during April to December. The genco also issued a tender seeking 540kt of coal with specifications including CV 5,600kcal/kg NAR (min) with delivery required during June to December

Taipower was reported to have awarded the business to Efficiency Corp (two Panamax cargoes), Samtan (three), and Universe Marine (two) following its tender seeking sub- bituminous coal with

specifications including S 0.2% (max) for delivery during April to June. The price was unconfirmed but on a CV and S premium adjusted basis it was believed to be a little above the then Mahakam Spot Price of US$85.30/t FOB barge. This year, local authorities in Indonesia have been closing

down illegal operations in Kalimanatan. These small local miners were a major problem in the

late 1990s and have been of increasing concern lately. The supply of lower quality coals in particular has become tighter as a result of the closures. Although heavy rainfall has exacerbated the supply situation in southern Kalimantan, the spot price of quality material had not shown any firming by mid-February.

Ships were being delayed at Port Kembla due to the industrial action at BHP Billiton’s operations in southern New South Wales in February. Waiting times were believed to be approaching three weeks as deliveries of hard coking coal to the port had been disrupted. Coal railings were disrupted when union members went on strike over the new enterprise bargaining agreement. Meanwhile,in

Queensland the flood-damaged Moura rail system had been repaired and was operating again.

Industrial action in the key supplier countries of Australia and Colombia had caused acute modest hikes in the spot price of thermal coal back then, but market players were understood to have been showing little anxiety about coal supplies being seriously tightened. If the situation was not resolved soon, there was a fear that the pattern may have continued with a rise in the spot price being seen in relatively small steps during those conditions. India’s rail system had also been disrupted by fatalities during the Kumbh Mela religious festival in February. Coal transport was affected.

Reports indicated that some cargoes of US thermal coal had been sold to Japan in February, and the latest data indicated higher coal burn among the electric power companies there. Their coking coal market has been quiet, but there were signs that lower quality hard coking coals were beginning to achieve firmer prices in the spot market. For reference brand quality, European buyers were rumoured to have been paying up to US$175/t FOB for Australian material in early February. The steel makers are understood to have been adjusting their blends amid

the demanding market conditions. In Europe, higher gas prices have kept interest in other fuels at the top of the fuel managers’ agendas, but a substantial increase in demand for coal and a consequent rise in the price has not been evident. India’s Tamil Nadu Power issued a tender in February seeking

4.2mt of coal for delivery during June to November 2013. Haryana Power was also seeking 2mt of imported coal. In

Korea, Kowepo issued a tender seeking 70kt of coal for the Taean power station at that time. Specifications included CV 4,200kcal/kg NAR (min) and delivery was required by 20 March.

A 48-hour general strike over various government policies in India was called for 20 February and all coal operations were to be affected. The loss of two days’ coal production led to additional shortages of domestic coal, which is expected to lead to more demand for imports this year.

Meanwhile in Australia, train drivers in New South Wales went on strike for 48 hours over wages in early February. Disruption to the rail system delayed well over 500kt of coal haulage.

In early February, there were reports of some buying activity in the European steel sector. The Australians seem to have picked up some business despite the disruptions to the supply chain in Queensland at that time. That may, however, have been the reason for buyers and traders purchasing cargoes after becoming concerned about a price rise in the coming months. At that time, the spot price of PCI material was believed to have been approaching US$150/t FOB as well.

After a disappointing and challenging first half of 2012 for coal trade around the world, the situation improved and in Asia in particular this was evident as the Chinese summer drew to a close. The improvements seen in some countries during the final months of 2012 which began to level off as the holiday season approached, have not taken a significant dive and as some analysts had predicted, the gains reached by December appear

to have reached a plateau which may take a few months to break through again. While markets have not returned to the depressed levels of a year ago, there has been no further indication of significant growth during the first couple of months of 2013 and the situation is unsteady. The disruption to substantial production of coal and supply from Australia and Indonesia has been a key factor in keeping coal prices relatively steady, so players will be watching how Chinese and other Asian trade develops over the coming months now that the production and transport situation has been resolved. Further cost cutting is ongoing in the mining

sector supplying the Asian consumers so in that respect the first half of 2013 looks set to be as challenging for coal shippers in Asia as it was in 2012. This year the coal exporters will be hoping for new business from the improvements in China, and the Australian coking coal exporters in particular will be hoping for opportunities due to the boost to the Brazilian economy from the sporting events there which could help trade during the next few years.