The first quarter of 2014 has shown some resemblances to that of last year in the Asian coal markets, with a rather unspectacular few weeks being seen so far. The Chinese lunar new year holiday is a regular feature of the quarter in the region, and market players always hope that business will pick up after the usual quiet period during that break. This year did not see much of a pick up after that, but there has been enough activity across the region to keep most of the buyers and sellers busy. India and China continue to be the main growth areas, while the established large markets in Japan, Korea, and Taiwan remain active in the spot tender market. Australia and Indonesia have seen challenges to production, and the Russians are looking to increase exports to the Asian markets.
In the latest developments at the time of writing, the spot market for coking coal around the world has not seen much more activity since the start of the year, and prices have continued to soften. Demand in regions outside China and India has not been strong, so the coking coal exporters have been unable to forge better deals elsewhere. The Asian thermal coal spot market has seen some more interest in certain coal types during March, with Indonesian shippers and traders reporting some new deals for sub-bituminous coal. The interest is said to be from India, as well as enquiries from Korea and China. Port congestion has worsened in Queensland as adverse weather affected that part of Australia. This is mainly impacting on the shipments of hard coking coal from the Bowen Basin, with thermal coal less affected. Vessel queues continue to lengthen at the time of writing after port shutdowns due to cyclone activity.
As Coal India Limited struggles to meet previously set production targets in order to meet growing demand for coal in the country, there has been a threat of strike action. The latest analyses suggest up to 6mt (million tonnes) of coal could be taken out of the supply chain as a result. It seems unlikely that this shortfall could be made up by additional imports of coal during the rest of 2014, so economic development would be affected by a further constraint on energy availability. Although spot market interest has been subdued so far this year, the latest statistics indicate that India’s coal imports reached a new record in January. Total tonnage reached 35.9mt in the first month of 2014 which was an increase of 17.5% compared to the same month in 2013. Coking coal comprised 5.7mt of the total. In the spot tender and tender markets recently, Formosa Plastics Group has been seeking 1.05mt of coal for delivery during the second quarter of this year. Meanwhile,Taipower has issued a tender seeking 375kt of sub-bituminous coal. The Asian thermal coal spot market has softened in early March after a brief recovery in late February. Australian shippers at Newcastle saw the price drop by 2.18% over a one week period. Indonesian spot prices, as well as those in the Russian Pacific markets also softened. Much of this decrease has been attributed to China’s reduction of the domestic price for Shenhua thermal coal. India’s problems with producing enough coal are continuing, with targets being missed during February. Demand for imported coal continues to be firm there. In other parts of Asia there has been firmer demand for coal from north America over the past year, as shown in the latest Canadian port data. There was a flurry of activity in the derivatives market at the end of February, with some new records set in terms of volume of trades. The Chinese imposition of a domestic price decrease is causing concern about another potential bout of defaults on deals already done in that market at firmer prices. Indeed, it is puzzling why trade has continued with some buyers and traders who have a record of such defaults over the past few years.
In early March, Japan’s Joban Joint Power was reported to have purchased Australian low sulphur thermal coal following its tender seeking eight Panamax cargoes. Although the tender is believed to have not been fully satisfied, up to six cargoes are said to have been sold for about US$80/t FOB (free on board) basis 6,322kcal/kg GAR (gross air dried). Delivery is required during April to December. The five Korean Gencos also issued a joint tender seeking 650kt of coal for delivery during July to September. Coal specifications include CV 5,700 kcal/kg NAR (net as received) (min). Russian coal was precluded from this tender. Meanwhile, Kowepo issued a tender seeking 140kt of coal with specifications including CV 4,600kcal/kg NAR (min). Delivery is required during July and August. In Taiwan,Taipower awarded the business to Energy Man Holdings (four Panamaxes),Vitol (four), and Advance Trading (one) following its recent tender seeking 11 Panamax cargoes of coal. A total of 675kt of coal with specifications including CV 5,000kcal/kg GAR (min) was purchased. Delivery is required during April to September and the price is reported to be in the range US$90.89–92.49/t CIF (cost, insurance, freight) from various suppliers. Two Panamax cargoes were left unfulfilled due to the offers being above Taipower’s ceiling price.
Russian Trader Carbo One has established a new office in Seoul in order to tap further into the predicted growth in coal demand from South Korea over the next few years. The trader is looking to increase tonnage from the current 30mtpa in both thermal and coking coal business.Additional capacity at the port of Vostochny would allow Carbo One to expand in other Asian markets as well.
In India, the consortium involving state-owned entities, International Coal Ventures Limited (ICVL), is reported to be close to completing due diligence on certain coal assets overseas. ICVL is particularly interested in strategically located coal mines in Africa and Indonesia, as well as in other regions including Australia and Canada. Its members are Steel Authority of India Limited, Coal India Limited, National Thermal Power Corporation, National Mineral Development Corporation, and Rashtriya Ispat Nigam Limited. All are said to have ample cash ready for the acquisition of
Newcastle Spot Price was US$78.00/t FOB basis 6,700kcal/kg GAD at the time. Higher ash material is said to be priced in the mid-US$60s per tonne. The Indonesian thermal coal market saw more activity from the Asian buyers, with India, Korea, Philippines, and Japan understood to have made enquiries for supply in the coming few months. The disruption to inland production caused by earlier wet weather, however, was still affecting supplies for prompt
delivery, and prices were firmer. In contrast, there had been reports of low water levels on the coal rivers in Kalimantan, and this was having an impact on barging to the load ports. Japanese cement makers are among the consumers rumoured to have been the end destination for some of the enquiries in late February. Meanwhile,Asian coal demand has received a new suitable coal assets. Meanwhile, a total of 31 coal blocks that were allocated to private entities for development have been retrieved by the government after they failed to meet deadlines for progress on development. Some of these blocks had been allocated to major companies including Jindal Steel, Reliance, and Tata Group.
At the end of February and over the following week, the spot market at Newcastle firmed a little, with traders reporting more enquiries for thermal coal. The buyers appear to have been from a range of Asian countries, and from general industry as well as the power generators. Some new Chinese interest was apparent after a bit of a lull following the New Year holiday there. The e-coal.com
boost from Cambodia commissioning its first coal-fired power station in February as well. In the coking coal markets in Asia, the steel makers are believed to be concentrating on blend optimization to control costs, and some shippers had been offering products at attractive prices. The blends are believed to be priced at several dollars per tonne below the price of the reference brand for contract deals.
As forecast by e-coal.com several years ago,Vietnam is needing more and more imported coal as its power generation programme proceeds. Petrovietnam’s importing branch PV Power Coal has recently signed a memorandum of understanding with Australian and Indonesian shippers for
the supply of 10mtpa beginning this year. Several GW of new coal-fired power generating capacity is due to come online in the next few years.
In mid-February the spot market in Australia saw a Capesize cargo of higher ash thermal coal sold at a price of US$65.50/t FOB basis
5,500kcal/kg NAR. A 25kt parcel of higher quality coal was reported sold on an electronic platform for US$78.00/t FOB basis 6,000kcal/kg NAR. Delivery is required in June, which puts this deal outside the 90 day prompt spot category. India’s NTPC Tamil Nadu Energy was seeking offers for 1mt of coal for delivery to Ennore port. The coal is to supply new coal- fired power stations in the area, but market players indicated that the tender documents provided few details as to the coal specifications required. Meanwhile, Essar Power has been seeking two Capesize cargoes of coal for delivery in March and April. The buyers were targeting Indonesian and South
African material to supply power plant in Gujarat, with the coal shipped to the port of Bedi.
In Korea, Kowepo has been in the market with a five-year term tender seeking coal with CV 5,700kcal/kg NAR (min). Beginning in the July quarter 2014, three Capesize cargoes are required. Kosep is reported to have awarded the business to GlencoreXstrata following its tender seeking coal supply for three years, with 420kt for delivery in the first year. The material is believed to be Russian with specifications including CV 5,500kcal/kg NAR (min). The price is rumoured to be about US$83/t FOB adjusted to basis 6,080kcal/kg NAR. Meanwhile, Russian Sakhalin coal is understood to have been purchased in a spot tender, with 2×40kt cargoes due for delivery in May and June.
At the time,Australian spot market players believed the price of thermal coal at Newcastle had begun to slow its decline although spot market activity there was reported to have been quiet. The Indian buyers had been active in the spot tender market again, and there had been enquiries in the spot market as well, with cement maker UltraTech seeking a Panamax cargo of South African coal for delivery in March. There had been relatively little activity in the Chinese thermal coal market following the national holiday, and shippers in the region had not been reporting renewed interest in February. Lower quality thermal coal sales were being reported in parts of the Asian market, but there had been few reports of spot interest in quality material from Australia, Indonesia, or elsewhere.
The Japanese steel makers are rumoured to be seeking to put greater importance on quarterly contract deals this year, and while conditions suit them, with less of their tonnage being subject to monthly contracts. The coking coal market has been weak for some time now, and they may be looking to lock in more tonnage at these low prices for longer before the price rises again.
Coal India Limited is reported to have admitted that it is not possible to achieve the production target for FY2014/15 of 530.75mt. The company was also aiming to reach a total coal output of 615mt during FY2016/17. Organizational and infrastructure issues, as well as bureaucratic delays and security problems have been cited as the main reason for the reconsideration. The production target has been revised to around 507mt for the coming financial year. This is likely to result in additional imported coal being required in the coming years. Meanwhile, a new 1,400MW power station in Punjab has been commissioned for Larsen & Toubro, and there are plans for further expansion of the plant. Sembcorp Industries has also signed a conditional agreement to acquire a 45% stake in NCC Power Projects. NCC is constructing a 1,320MW coal-fired power station at Nellore in Andhra Pradesh.
In Indonesia Tata Power is to sell its 30% stake in PT Arutmin to Bakrie Group for US$500m. The low price of coal has been cited as the main reason behind the move. In order to secure coal supply for its power plant,Tata retains its interest in PT Kaltim Prima. An International Energy Agency consultant has prepared a report for the Energy Policy Institute of Australia on the future of thermal coal. The fuel is expected to dominate power generation for the next 25 years, and the strategic importance of coal is at its highest since 1971. Coal-fired power generation is forecast to increase by 70% over the period. There are, however, a number of economic forecasts which suggest a range of demand scenarios for thermal coal, influenced particularly by environmental policies and to what extent these are implemented. e-coal.com notes that while coal prices are in a slump at present, and many producers are struggling to remain profitable, recent statistics indicate that coal production has been increasing in some regions during 2013. Demand growth therefore does not necessarily mean the industry will be profitable.
The Indian buyers are reported to have been quite active in the spot market during the first half of February. Traders say that Indonesian and South African shippers have been seeing enquiries, with lower quality material being of interest again in Indonesia. The customers are understood to have been keen on Indonesian coal with CV 4,900kcal/kg NAR for a price around US$58/t FOB. Sellers had been trying to keep the price above US$60/t FOB. Meanwhile, Coal India Limited re-issued its tender seeking 5mt of thermal coal after its previous attempt in November received no responses. The conditions were constrained by excluding private companies from participating, and access to the necessary international market was therefore limited. The re-tender is understood to be seeking supplies until September 2015. According to market players, there was insufficient information in the tender to motivate much response again.
During the second week of February, thermal coal spot markets softened. Following disruptions at Richards Bay, the resumption of supply from South Africa had been influencing the Atlantic market as well as that to India and other parts of Asia, and prices decreased. The return of the Chinese buyers after their holiday had not had an upward effect on the spot price of thermal coal. Meanwhile, negotiations on the new contract price between Glencore and Tohoku EPC in Japan had started. Early in February, new monthly contract prices for hard coking coal were agreed between an Australian shipper and European steel makers. In India, provisional data indicated that the country had been importing more coal over the past year, with demand still firm. Meanwhile, the annual lull in Chinese activity had some impact on the spot market in the southeast Asian region. While high output had been reported for the major miners in Australia, other large coal miners in other countries were beginning to report similar record levels of production amid a weakly priced global coal market in 2013. BHP
Billiton settled some new supply contracts for Queensland hard coking coal with its European customers. The deals referred to the March deliveries, and the price for the Goonyella reference brand was reported to be about US$132/t FOB. The higher quality Peak Downs brand was priced at about US$135/t FOB. These prices were about
US$4/t lower than those for February — a decrease of some 2.8%. The quarterly contract price of the Peak Downs brand for Q1 2014 was previously set at US$142/t FOB, while the monthly price average was about US$139/t FOB indicating a softening short-term trend in the price of hard coking coal.
In the early part of 2014, traders reported that the spot price of thermal coal at Newcastle had softened further amid the Chinese holiday period. The e-coal.com Newcastle Spot Price was US$78.50/t FOB basis 6,700kcal/kg GAD at the time. Rumours had started that some high cost miners may have been in the market as tonnage was available at below their cost of production. Any deals done by them were not confirmed, however, but the suggestion was logical. The absence of Chinese buyers over their New Year holiday had some impact on the spot market in Indonesia. Traders in the region, and those operating from elsewhere around the globe saw a softening in the price of about a dollar per tonne.
The e-coal.com Mahakam Spot Price was US$76.25/t FOB barge basis 6,700kcal/kg GAD then. In Korea, Kosep issued a spot tender seeking 160kt of coal for delivery during May to June. Specifications included CV 4,600kcal/kg NAR (min). The genco also issued a term tender seeking 840kt of coal for delivery up to 2017. Specifications included CV 5,500kcal/kg NAR (min). Meanwhile in Taiwan, Taipower issued a tender seeking 825kt of coal for delivery during April to September in 11 Panamax cargoes. Specifications included 5,500kcal/kg GAR (min).
In port news,The Great Barrier Reef Marine Park Authority has granted conditional approval to North Queensland Bulk Ports Corporation to dump dredge spoil from Abbot Point coal terminal at sea. The application was for a deep water location beyond the World Heritage reef system.
Despite adverse currency exchange rates last year, the total quantity of coal imported by India is believed to have increased to about 130–135mt according to provisional estimates. This compares with the official total of 123mt recorded in 2012 — and could be an increase of up to 10% year- on-year. In Indonesia,Adaro has reported a record coal production total of 52.3mt in 2013. This is an increase of 5.1mt or 10.8% compared to the total in 2012. Sales in 2013 reached 53.47mt which was an increase of 10% compared to 2012. The second half of 2013 was the company’s strongest to date, and it aims to produce up to 56mt of coal in 2014.
Coking coal shippers might take some encouragement from the news that world steel production increased in 2013 to reach 1.607bnt.This was an increase of 3.5% compared to the total in 2012.The growth, however, came from the Asian markets while other regions recorded a decrease in steel output.The Asian steel makers produced 1.080bnt of the total which was an increase of 6% for them compared to 2012.
This year we can expect China and particularly India to be the main focus for import growth in Asia again, with steady trade in Japan, Korea, and Taiwan. The shippers in Australia and Indonesia also hope to see some growth in coal exports again, with some new competition possible from Russia in its Pacific ports. The first quarter of 2014 may have already set the tone for the rest of the year, but Russia’s latest actions in Ukraine could be a real game changer in the global energy sector in the months ahead.
Dr Tim Jones is Director of e-coal.com Consultancy and Editor of the weekly publication Coal Market Intelligence which covers 11 spot markets worldwide, gives key information on the latest deals and tenders, company news, people and jobs, industrial relations, and ports, shipping, and freight rates. DCi