by Dr Tim Jones
Coal trade in the Asian region has seen a remarkable comeback
compared to the situation a year ago. The trend in trade can be
seen in the charts and tables accompanying this article, and the
recovery in spot prices is also evident. The market bottomed
out around the time the previous report on Asian coal trade
was given here a year ago, when steel demand had slumped and
was impacting markets for coking coal and metallurgical coke.
This year has seen a recovery in contract prices as well, and with
more complex structuring of the deals.
Some Australian exporters of hard coking coal are optimistic
that improved demand from China will continue in the next
couple of years and there have been reports of enquiries for
supply in 2011 already, with some marketing managers suggesting
they are already sold out for 2010. Chinese demand for thermal
coal could rise as the summer approaches amid worsening water
shortages for hydroelectric stations there.
This year’s process for arriving at the hard coking coal
reference price was promising to be a complex matter. Market
reports had been indicating the preference for quarterly pricing
by BHP Billiton while customers had apparently given this a cool
response. The rumours suggested BHP Billiton may offer an
annual contract price as its opening play, with the incentive of a
discount if customers took a quarterly contract. The Goonyella
brand has been used as the reference in the past, but other
brands were in the news this time round. There have been
rumours that the Peak Downs brand may have been offered at
about US$240/t FOB (free on board) during meetings with the
Japanese steel mills in the early stages, but all parties concerned
were making no comment as usual. If this were true, it was taken
as a signal of the upper range of pricing for JFY2010 for the low
vol material, with high vol expected to have commanded a lower
price. The potential structure of contract pricing in the coking
coal market was resembling that innovative approach the
Australians took with Chubu EPC in the thermal coal market
over a decade ago when a tiered structure was agreed. The
development of a spot market in coking coal since that time has
had an influence, and the rumoured price of US$240/t FOB was
close to the then current spot activity, but about double the
reference price in JFY2009.
BHP Billiton was eventually reported to have reached
agreement on quarterly supply contracts for its Australian hard
coking coal with customers in Japan, China, India, and Europe.
There were indications that the average price is around
US$200/t FOB for the tonnage agreed, with further volumes for
delivery in 2010 to be agreed when prices are due for
negotiation later in the year. The US$200/t FOB price is
understood to apply for the April–June 2010 quarter.
In the early part of 2010 as the markets continued to recover
from the slump in steel demand, shippers were rumoured to be
seeking a price of at least US$150/t FOB for PCI (pulverized
coal injection) material for contract deliveries in FY2010. A deal
by Gloucester Coal for 25kt of semi-hard coking coal for
US$164/t FOB had excited some hard coking coal sellers. On
an adjusted basis some analysts suggest this equates to around
US$300/t FOB for hard coking coal, which would be well above
current market expectations for FY2010.
In Australia at the time of writing, there have been some deals
reported in the prompt spot market for thermal coal, and the
price appears to be hovering around the US$100/t FOB basis
6,700 kcal/kg GAD (gross air dried) level during the early part of
Q2 2010. A cargo was recently sold for US$97.50/t FOB
Newcastle basis 6,700 kcal/kg GAD for delivery in July. A 25kt
cargo was sold earlier for US$96.50/t FOB same basis for
loading in July. Japanese general industry customers are
understood to have been making enquiries for Newcastle
cargoes in mid-April, while Chinese and Korean buyers are also
said to have been active.
In China, the Japanese utilities have been negotiating contract
supplies for JFY2010 with their Chinese suppliers. The sellers
were rumoured to be seeking a price of around US$130/t FOB
adjusted to basis 6,700 kcal/kg GAD. This is around US$50/t
higher than was agreed last year, representing an increase of
some 60%, but similar to the level in JFY2008 at the time of the
surging coal market ahead of the financial crash. The latest
reports suggested the price could be settled at somewhere
between US$100 and US$130 per tonne, indicating a large
difference in initial price ideas. The then current
China Spot Price was US$109.00/t FOB basis 6,700 kcal/kg GAD
and the Japanese contract could be agreed at close to that level
which would fit with the freight advantage the Chinese have over
their competitors in Australia and Indonesia who have already
settled contracts.
In Australia, Xstrata’s marketing managers have been
negotiating contract supplies with the Japanese EPCs and are
reported to have settled a price of US$98.00/t FOB basis 6,700
kcal/kg GAD for an annual deal. Negotiations have been ongoing
for additional contracts, with the seller believed to have been
seeking US$100/t FOB same basis. Meanwhile in related
markets, Rio Tinto announced that it was negotiating contracts
for the supply of iron ore on a quarterly basis. BHP Billiton and
Vale have shifted their iron ore supply contracts to a quarterly
basis following similar developments in the coal sector. Vale is
reported to have agreed a reference price of US$105/t with
Nippon Steel for the April–June quarter which equates to an
increase of 69% compared to last year’s annual contract price.
Meanwhile, Vale is rumoured to be seeking a price increase of
130% for pellets with European customers. Analysts estimate
new prices of 186.76 US cents per metric tonne unit for Carajás
fines, 224.72/mtu for lump ore and 261.83/mtu for Tubarão
In the smaller markets in the Asian region, in Mauritius the
occasional tender by the island’s sugar industry was expected to
be issued again soon. A total of about 480kt is understood to be
sought in the near future, with about 40kt required per month
from October this year. South African exporters who are also
enjoying the growing demand from India and other Asian
markets are particularly interested in this business which was
expected to be offered in May.
In some of the larger Asian coal markets, Taiwan’s Taipower
issued a tender seeking 15 Panamax cargoes of coal for delivery
during May to July. Offers were due by late April. Meanwhile,
reports indicated that Taipower awarded the business to several
shippers following its earlier tender seeking 15 Panamax cargoes
of coal. ABK was awarded one cargo at US$107.32/t CIF (cost,
insurance, freight) evaluated, Advance two cargoes (US$104.50/t)
plus a third for an unconfirmed price, Flame one cargo
(US$107.61/t), Gerbang one cargo (US$107.32/t), and Indocoal
four cargoes (average US$110/t). Taipower has also been seeking
suppliers for term contracts starting in 2011. Pre-qualification
documents were to be submitted by the end of April.
In mergers and acquisitions activity, in Australia, Peabody
Energy made a further offer for Macarthur Coal of A$16 per
share which was still conditional on Macarthur not proceeding
with its bid to buy Gloucester Coal. Earlier, New Hope offered
A$14.50 per share (with a cash component limit of A$950m) for
Macarthur plus 2.7 New Hope shares per Macarthur share, but
this was rejected. Macarthur shareholders met on 19 April to
decide on the bid for Noble’s coal assets in Australia. The latest
news was that Noble’s shareholders decided against the deal
with Macarthur, but the PCI producer is understood to be still
Indonesia’s PT Bumi Resources is reported to have settled a
supply contract for Kaltim Prima thermal coal with a Japanese
customer at a price of US$104/t FOB basis 6,700 kcal/kg GAD.
The shipper was able to achieve a premium over the Australians
due to the freight advantage. As coal resources continue to be
exploited, BHP Billiton and Adaro have recently agreed a 3:1 JV
to develop the Maruwai coking and thermal coal deposit in
Indonesia. Around 774mt (million tonnes) are estimated to be
present in the deposit, and the transaction is subject to the
approval of the Indonesian government.
Heavy rains are reported to be having an impact on coal
production in Indonesia at the time of writing, with the impacts
likely to persist for some time. Vessel queues have been growing
off the main load points in Kalimantan, with a total of around 60
ships being reported at anchor at Samarinda and Banjarmasin
during the first quarter of this year.
Meanwhile, environmental concerns have been an issue in
Indonesia recently, and there have been reports that tailings have
been leaking from the ponds at Tanito’s operations due to the
very heavy rainfall seen this season. Due to the potential impact
on the environment, some rumours had been circulating that the
operations could be suspended by the authorities, but this had
not been confirmed.
In Korea, a tender by the five Gencos seeking 700kt of coal
was reported to have been won by a South African shipper with
a price of about US$83.00/t FOB basis 6,700 kcal/kg GAD.
Meanwhile, one of the gencos, Kosep issued three quick tenders
seeking 420kt of coal for delivery during May to July. In March,
Kospo issued a tender seeking 300kt of coal for delivery to the
Hadong power station for delivery during May and June.
Meanwhile, some 4mt of South African coal has been reported
offered in a recent tender seeking 1.125mt of coal for delivery
to various Gencos over the coming six months.
Korea’s Kewespo was in the market in March with a quick LT
tender seeking 520kt of bituminous coal for delivery to the
Dangjin power station during April 2010 to March 2013. The
Genco was also in the spot tender market seeking 520kt of
bituminous coal (CV 5,500 kcal/kg NAR* [min]) for delivery
during April to June 2010, plus 650kt of sub-bituminous coal (CV
4,600 kcal/kg NAR [min]) for delivery during May to June 2010.
Kospo has issued three tenders recently, seeking 1.16mt of coal
for delivery to the Hadong power station. In the first tender,
540kt of coal with specifications including CV 4,800 kcal/kg NAR
(min) was required for delivery during April to June. The second
tender was seeking 210kt of coal (CV 4,600 kcal/kg NAR [min])
for delivery during the same period. The third tender sought
coal for delivery during April to May and is for 410kt of coal
with specifications including CV 5,500 kcal/kg NAR (min).
Korean steel maker, Posco has settled quarterly contract
deals with the Australians for semi-soft coking coal at a price of
US$167/t FOB. This price for deliveries during the April–June
quarter is more than double last year’s annual contract price and
is close to the price of PCI coal settled recently.
In other Asian markets, exports of Vietnamese coal — mainly
anthracite, have been decreasing this year in line with
expectations that domestic demand would increase in the
coming years and the government would seek to keep more coal
for Vietnam’s own economic growth. Production has been rising
by some 10% year-on-year in 2010 so far while exports have
fallen by well over 10%. Southern China has been the main
market for Vietnamese coal in recent years. Vinacomin was
forecasting coal exports to remain at the same level as last year
in 2010, amounting to 18mt but this level may not be reached.
Total production is forecast to be 43mt this year. Vinacomin is
also understood to have increased the minimum price of export
coal by 31% as export volumes begin to ease amid expanding
domestic demand. Approximately 18mt was exported in 2009
which was a decrease of some 28% compared to 2008.
Malaysia’s TNB Fuel was back in the market in Q1 seeking
two 65kt cargoes of coal for delivery in March. Rumours ahead
of the deadline suggested South African coal was being offered
by traders at about US$79.00–81.00/t FOB basis 6,700 kcal/kg
GAD. This was close to the then prompt spot price and in line
with the quick delivery requirements requested by TNB.
During the first quarter of this year, mining companies
learned that foreign investment in Mongolia’s vast Tavan Tolgoi
coal resource amounting to some 6.5bnt may not be possible
after all. The government is reported to be seeking to retain full
ownership rather than selling up to 49%.
In India, import demand appears to have received a boost
following delays in the approval process for new domestic coal
production. Environmental issues have been delaying a large
number of projects under application by Coal India, amounting
to some 34mtpa of previously planned output in 2012.
Adani is reported to have purchased a cargo of Colombian
coal from CMC. The price was not disclosed, but is likely to have
been low on an FOB basis, and the deal is significant in that it is
the first known cargo of Colombian thermal coal to be shipped
to an Indian customer. Loading was required in April.
Maharashtra Power has also been in the market seeking 3.35mt
of coal for delivery over 12 months starting in April. Karnataka
Power issued a tender recently, seeking 900kt of coal for
delivery to the Raichur power station during April to December
this year. Meanwhile, low ash material was being sought by Udupi
Power for its new power station in Karnataka. Up to 1.25mt of
imported material is required in this tender. Meanwhile, JSW
Energy has been seeking 500kt of Indonesian coal for delivery
during April 2010 to March 2011.
In Indian activity overseas, shipping company, Mercator Lines
is reported to be looking to invest US$100m in coal mines in
Indonesia. Production of up to 10mtpa is planned within five
years. Reports from India indicate that industry leaders believe
the country will face a coal supply shortfall of around 60mt by
2013. During the coming two decades, India’s coal demand
could grow to 2bntpa. Only a quarter of that tonnage is
currently produced domestically.
Although on the other side of the Pacific Ocean, Mexico’s
CFE is rumoured to be planning to come to market seeking
1.5mt of coal for delivery during 2011 and 2013, and this is of
particular interest to suppliers in Indonesia and Australia.
In Australia, the port facilities at Hay Point were closed for
several weeks due to damage sustained during cyclone Ului.
Force majeure was declared by BMA and Macarthur Coal.
Estimates suggest around 2mt of Queensland exports could have
been lost due to Ului, with some 4mt already lost this year due
to adverse weather. The price of coking coal in the spot market
there firmed again to around US$240/t FOB at the time and this
was attributed to the disruptions. The lesser volumes of spot
thermal coal sold in Queensland also rose in price a little.
Around that time, further quarterly contract settlements were
reached for hard coking coal involving Indian steel makers, and
suppliers in Australia, New Zealand and the USA. The BHP
Billiton reference price of US$200/t FOB was accepted. The
price of semi-soft coking coal was also agreed by the Australian
shippers in Korea.
In the coking coal market in Australia during the first quarter,
it appeared that demand for hard coking coal on a spot basis
eased somewhat following the settlement of the first batch of
quarterly contract deals by BHP Billiton and other shippers. This
could be the first indication of an ongoing trend in the market if
such a price structure sustains itself, allowing market players
some new indicators of the likely movements in that spot
market every quarterly period. The fall in the spot price was not
instant on this occasion but took a couple of weeks to move
towards the contract reference price level of US$200/t FOB.
The spot price decreased to around US$210/t FOB from around
US$220/t FOB a week earlier. At the time the first quarterly
contract price was being negotiated, the spot price was reported
to be around US$235/t FOB. Meanwhile, rumours suggest the
price of Queensland PCI coal was being settled on a quarterly
contract basis for about US$170/t FOB. Buyers may also be
agreeable to half-yearly contracts for PCI material. Meanwhile, in
Canada, Teck is reported to have settled the quarterly contract
price for hard coking coal with Japanese customers at US$200/t
FOB. Deliveries are for the April–June quarter.
In Indonesia this year, the government introduced a monthly
coal price reference to be used by producers to price all future
coal sales. The reference is derived from the monthly average of
four prices, with some of those prices actually covering other
countries’ export markets. The first price published was
reported to be US$87.81/t FOB vessel basis 6,700 kcal/kg GAD.
Interestingly, this value was virtually identical to the
Mahakam Spot Price of US$85.50/t FOB barge on 5 March
which has been tracked for more than ten years now, and to our
knowledge was the first regularly published spot price to be
introduced specifically covering Indonesia. Meanwhile, two new
mining regulations introduced in Indonesia recently have paved
the way for investors to obtain new mining permits, and for the
government to offer mining areas to developers. The Indonesian
government has also upgraded its power generation plans with
more than 90 new power plants being proposed for future
development. Around 3,500MW of coal-fired capacity is
anticipated out of a total of more than 10,000MW, but no
construction timetable has been approved yet.
In New Zealand’s coking coal sector, their Indian steel
customers purchased a cargo of Pike River hard coking coal for
delivery last November, but that was delayed. The price is
rumoured to be around US$120/t FOB for this first export
cargo for the miner, which was understood to have been
deferred to be shipped in February. Another 40kt is expected to
be shipped in Q2 through the port of Lyttleton.
At the ports, Australia’s UGL Limited has been awarded the
contract to supply 15 new locos and 160 wagons for
Queensland Rail’s coal haulage expansion in the Hunter Valley.
The first wagons were expected to be delivered in April and the
first locos in December. Coal producers have previously
remarked to about the need for improved rail
infrastructure and rolling stock amid ongoing port improvements
in New South Wales. Vessel delays off the Australian east coast
have reached an all time high following the recent disruptions
due to bad weather, with an average time of 22.9 days being
reported recently. As new infrastructure develops in the Asian
market, Peabody shipped the first cargo of coal through the
Newcastle Coal Infrastructure Group’s new terminal in the last
weekend of March. The 36kt cargo of Wambo product was for a
Japanese customer.
The gloom of October 2008 now appears to be well in the
past, and our prediction of an improvement in Asian coal trade a
year ago has come true. The growing Asian economies seem
unstoppable and the major coal markets of China and India
continue to be the driving forces on a global perspective.
Dr Tim Jones is Director of 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.