Asia continues to be the main centre of activity in the international coal market as 2012 progresses, although the firm drive felt from China in recent times has been relatively quieter during the past few months.
In the latest news from the coal markets, in Australia, Rio Tinto is understood to have agreed the price of hard coking coal for the April quarter with Korea’s Posco at US$206/t FOB (free on board). The price is in line with Teck’s recent settlement in Korea. Spot prices for the reference brand hard coking coal were flat following the settlement, with Queensland shippers understood to be asking around US$205–206/t FOB. Following the quarterly contract price settlements the spot price softened by a couple of dollars per tonne compared with the level in late February. Meanwhile in Canada, reports suggest Teck sold a trial cargo of hard coking coal to a new customer in China for about US$175/t FOB. There have also been reports that the producer has excess tonnage on the pads at the ports.
In China, the metallurgical coke export market remains stagnant at the time of writing as Chinese prices remain well above the international market level amid relatively low demand. The spot price is being reported at a little under US$500/t FOB for 12% ash material and has been around the same level for several weeks. Buyers in the international market have been looking elsewhere for their coke supplies and have been offered tonnage at about US$100–140/t FOB less than the Chinese price. The main supplier countries being seen in the market at present include Colombia and Japan, with the Brazilian steel mills taking some Colombian product recently.
In the thermal coal markets, the Indonesian Coal Price Reference for March has been set at US$112.87/t FOB vessel. This is an increase of US$1.29/t compared with the price set for February, amid a softening thermal coal spot market.The government relies on the opinions of journalists reporting elsewhere in setting this price reference. Korea’s Kosep is in the market seeking 900kt of bituminous coal for delivery during July to August. Specifications include CV 5,700kcal/kg NAR [net as received] (min). In Taiwan, Taipower has received offers of 5.55Mt of coal following its recent tender seeking 1.125mt (million tonnes) for delivery during May to August. Price envelopes have not yet been opened at the time of writing.
There has been a long-running industrial dispute in Australia, and BHP Billiton appears to be digging in over its position regarding a new enterprise bargaining agreement at the BMA mines in Queensland’s Bowen Basin. Union members numbering some 3,500 are continuing their campaign involving industrial action at the hard coking coal operations in the state. Union members at BHP Billiton Mitsubishi Alliance started their latest industrial action at the Norwich Park and Saraji coking coal mines with a 10-day action from 25 February. A two day stoppage was also affecting operations at the Blackwater, Crinum, and Peak Downs mines. The ongoing dispute over the new enterprise bargaining agreement does not appear to be any closer to resolution.
Still in Australia, Port Waratah Coal Services has put the environmental impact assessment for its proposed Terminal 4 development on display for public comment. The $5bn project on Kooragang Island would have a capacity of 120mtpa (million tonnes per annum) and would increase total capacity at Newcastle to 331mtpa. The plans, however, come amid a perceived tightening in planning and environmental regulations and procedures in New South Wales.
The Indonesian government has issued new regulations requiring foreign investors in the coal sector to reduce their share of a project to a maximum of 49% by the tenth year of coal production. The move has rattled some industry players around the world, although the Indonesian government has had this type of regulation, in various forms, from the early days of the modern coal industry expansion there in the 1990s.
At the beginning of March, the pressure appeared to be on for the Australian coking coal exporters as the rest of the world’s shippers waited to see what reference price they
agreed with the Japanese in the wake of Canadian settlements in Korea.
South African spot business seems to be confined to Asia now, with the European market having little influence. It was noted at the time that prices being paid for coal delivered to Asia in 2013 were about 5% higher than the then prompt spot price at Richards Bay.
The coking coal spot market in Queensland softened over the course of the first week of March, with the latest quarterly contract settlement not helping to bolster the spot market. Spot prices for the reference brand were being quoted at US$206/t FOB after a decrease of some US$2/t since the end of February. No deals had been reported, and it was conceivable that the Australian prompt spot price may yet prove to be a little higher compared with the latest Canadian contract price. The Japanese steel mills were reported to be negotiating with the Australian shippers, who
were understood to be expecting a higher quarterly contract price for the April quarter. Without any confirmed deals being done, and in a thin spot market, speculation had been growing, with the latest rumour suggesting the Chinese had purchased a cargo of premium quality hard coking coal from Australia for about US$175/t FOB. The Australians would not normally sell at such a discount to the market, especially during contract negotiations with the major customers. Perhaps the rumour can be attributed to a trader or buyer with a particular position.
By early March in Canada,Teck was understood to have settled the quarterly contract price of hard coking coal for the April quarter with Korea’s Posco at US$206/t FOB. The price was close to market expectations over the previous couple of weeks as the shipper was believed to have been offering at US$210/t FOB while Posco was aiming for close to US$200/t FOB. The price represents a decrease from the previous level of US$235/t FOB amid a softening market since the start of 2012. Some observers believe this new price could set the floor for the hard coking coal quarterly contract price this year, with some optimism that Asian steel demand will improve in the second half. US exporters have also been
signalling their expectation of an improvement later in the year.
In the thermal coal market, the Colombian exporters appear to be winning favour in Asia once again, with Kowepo reported to have awarded 160kt of the business to the Colombians following its tender seeking 170kt of coal. The coal specifications included ash 20% (max) adb, and CV 5,600kcal/kg NAR (min). Rumours of Colombian coal being sold for around US$89/t FOB in late February may be linked to renewed Asian activity, and may result in some misleading price reporting elsewhere if the coal quality is not recognized, as happened a couple of years ago. Higher ash material with poorer qualities would not be typical of the established markets in Europe and the Mediterranean, but with ongoing weak demand there, the Asian deals may dominate for a while again this year.
On a local basis in South Asia, Indonesia’s Bayan Resources has agreed terms on a 10-year contract to supply thermal coal to the new 1,320MW power station being built by India’s Gayatri Projects. Indonesian shippers were also expecting some trade in Taiwan when Taipower issued a tender seeking 1.125mt of sub- bituminous coal for delivery in 15 Panamax cargoes during May to August. Meanwhile, there seems to be a conflict between the Indian government and Coal of India Limited. Although the government directed the miner to increase imports of coal to satisfy demand, the acting chairman is reported to have stated that CIL is not in the coal import business.
Indonesian state generator PLN is forecasting its coal demand will increase to 100mtpa by 2015. Forecasts for consumption in 2012 suggest 57mt will be reached. From 2014 the utility’s import demand could increase.
In late February, some analysts in the banking sector were revising down their forecast for the reference price of thermal coal for 2012 between the Australian shippers and the Japanese EPCs from US$125/t FOB basis 6,700kcal/kg GAD (gross air dried) to about US$120/t FOB. This came amid a spot market at Newcastle in which the then
current price was some US$4.00/t FOB less than this forecast contract level.
The Chinese spot price of 12% ash metallurgical coke remained well above the price in the international market at about US$490/t FOB with no deals reported in late February. For comparison, Japanese material with 12% ash was said to be priced at about US$365/t FOB and had been rising in price during that month. The cheapest material available in the international coke market at the time appeared to be the Colombian 12.5% ash product which had been reported on offer for about US$320/t FOB.
Of relevance to the coking coal markets are reports that the Chinese steel makers are expected to increase the
price of exported steel by around US$30/t. Reports indicate that April contract prices for thick plate and hot rolled material have risen to around US$640/t FOB.
In the middle of February, Chinese thermal coal buyers were understood to have been bidding around US$85–90/t FOB for lower CV high ash material at Newcastle. No deals had been reported, but some misleading price reports emerging from Australia were anticipated if the coal quality is not understood and taken into account. The price of China’s Shanxi hard coking coal in the domestic market is reported to be around US$250/t which could lead to an increase in interest for imported material. The delivered spot price of Australian and Canadian hard coking coal would be some US$20/t less to the Chinese ports at the time of writing.
In February, the Indonesian Coal Price Reference was set at US$111.58/t FOB which was an increase of US$2.29/t compared with January.The number was a few cents higher than the then e-coal.com Mahakam Spot Price. The government receives its royalties based on the number for future coal exports and domestic sales, but uses spot prices published elsewhere and from other countries to derive the number. Since its launch, the number appears to hover several percent above or below the prompt spot market and it has been noted that it does not necessarily move in the same direction as the prevailing market each month.
Kowespo issued a tender in February seeking 170kt of coal with specifications including CV 5,600kcal/kg NAR (min) and ash 20% adb (max). Delivery is required by 1 May and Colombian and South African coal is to be offered on a CFR (cost and freight) basis. Meanwhile,Taipower was reported to have awarded the business to Peabody Coaltrade with 150kt of coal, Glencore (150kt), Kideco (150kt), and Nefill Energy (150kt) following its tender seeking 600kt of sub- bituminous coal for delivery during March to June. Specifications included CV 4,800kcal/kg GAR (min). The prices are understood to be in the range US$124.44- 128.00/t CIF (cost, insurance, freight) evaluated.
In some encouraging financial news but some uncertain corporate news in the beginning of February, BHP Billiton announced an increase in earnings of 9.7% for the half year to December 2011 compared with the same period in 2010, reaching US$37.4bn. A profit of US$15.69bn was recorded for the period, which was an increase of 5.8% compared with the same period in 2010. Hard coking coal prices were reported to be 31% higher compared with the year-ago period, and export thermal coal prices were 22% higher. A little earlier, BHP Billiton announced that half yearly
production records were set at New South Wales Energy Coal, and Cerrejon Coal in Colombia. Global operations recorded a total of 35.379mt of thermal coal produced during the December half year. This was an increase of 5% compared with the same period in 2010. Total coking coal production across the company’s operations worldwide reached 17.784mt in the December half year which was a decrease of 2% compared with the same
period in 2010. Volumes in Queensland remained below capacity due to stoppages associated with ongoing labour negotiations, and the impact of previous wet weather. Industrial action continues to be a threat to production this year.
Rio Tinto reported total production of hard coking coal was 8.815mt in 2011 which was a decrease of 2% compared with the previous year. Bad weather impacted production during the first half of 2011. Production of semi-soft coking coal totalled 2.86mt, which was a decrease of 7% compared with 2010, and thermal coal output reached 17.79mt in 2011, which was 3% lower than in the previous year.
The Asian steel makers were rumoured to have purchased several cargoes of metallurgical coke from the Ukraine in early 2012. Prices are unconfirmed, but Indian buyers were reported to be paying around US$355/t CIF. This price was lower than the settlements for contract deals for Czech and Polish material at around US$410/t FOB on average for Q1. This suggests the material being sold to India from Europe is at the lower end of the quality range. The price of 12.0% ash metallurgical coke in supplier countries was close to US$350/t FOB at the time, except for China where reports indicated a price of around US$490/t FOB which would be pricing the Chinese out of the export market, and no trades had been reported from there. At the same time, Korea’s Kosep was in the market seeking 380kt of coal in two tenders. The first sought 120kt of coal with specifications including CV 5,500kcal/kg NAR (min), and the second was looking for 260kt of coal with CV 4,600kcal/kg NAR (min). Delivery is required during 25 March to 30 June.
Coal procurement news from Sri Lanka is not normally that prominent, but Lanka Coal was understood to have issued a tender seeking 1.5mtpa of thermal coal in February. The coal is for the Dehiwala plant and, at the time of writing, offers were due by 28 March giving shippers plenty of time to consider their options.
Taipower was reported to have awarded the business to Advance Trading (525kt), Flame (300kt), and Glencore (300kt) following its tender
in January seeking 1.125mt of coal for delivery during March to June.The Indonesian material is understood to have been priced in the range US$124.93–127.00/t CIF evaluated.
At the end of January, China reported that imports of coal reached 182.4mt in 2011 which was an increase of 11% compared with 2010. China Coal produced 102.79mt of coal in 2011 which was an increase of 8.9% compared with 2010. The country’s second largest coal producer also recorded an increase of 13.8% in coal sales to reach 133.46mt. Only 740kt of the coal it produced was exported. In another growing economy, the Indian government has given Coal India Limited a target of producing 464mt of coal in FY2012. Around 440mt could be achieved in the current financial year, and the next
target appears unlikely to be achieved. India’s need for imported coal is expected to continue to grow. Around that time, Coal India cancelled a tender issued in February 2011 to develop two coal blocks in Mozambique after the favoured bidders took a different approach to the project. Coal India is aiming to begin coal production there by 2015 and is expecting to restart the tender process in the second half of 2012.
The Philippines coal sector reported that domestic coal production increased in 2011 to reach 7.61mt compared with 6.29mt in 2010, which was an increase of 21%. The main producing region is still Semirara, with around 169kt produced at Zamboanga Sibugay. Indonesia and China have been key suppliers to the Philippines in recent years.
In the result of tenders issued in January, Korea’s Kosep awarded the business to Australian, Indonesian, and Russian suppliers. The Genco was seeking 390kt of coal for delivery during 25 January to 30 April. A Capesize cargo of Australian coal was believed to have been purchased at about US$110.50/t FOB basis 6,700kcal/kg GAD, while a Capesize cargo of Russian material was understood to have been priced at about US$113.50/t FOB same basis. Two Panamax cargoes of Indonesian coal were rumoured to have been priced at about US$95.00/t FOB adjusted to basis
6,700kcal/kg GAD. Meanwhile,Taipower issued a tender seeking 600kt of sub-bituminous coal for delivery in eight Panamax cargoes during March to June 2012. Specifications included CV 4,800kcal/kg GAR, sulphur 0.4% (max) adb, and TM 30% (max) arb. Taipower was also seeking 1.125mt of sub- bituminous coal in 15 Panamax cargoes for delivery during March to June. Specifications included CV 5,000kcal/kg GAR (min), sulphur 1.1% (max) adb, and TM 28% (max) arb. In Australia, the Queensland government is planning to
increase levies and taxes on the coal industry later this year. The plans could raise $95m from 2013 through a cash-only tender
process for coal exploration on new land. There will also be a transfer duty imposed on exploration permits which could raise another $30m.
Infrastructure development continues, and in Australia BHP Billiton has announced that the Goonyella to Abbot Point rail project is on track. Notice has been given to the Queensland government of a proposed rail corridor alignment to the port for multiple rail lines including a dedicated line for BHP Billiton and partners in the Bowen Basin. Coking coal export capacity in this project could reach 60mtpa.
As 2012 got under way, unconfirmed reports suggested that Australia’s Jellinbah reached agreement on hard coking and PCI (pulverized coal injection) coal contract prices for the first quarter of 2012. The Lake Vermont hard coking coal brand is believed to have been priced at US$230/t FOB in line with contract prices settled earlier between other shippers and the Japanese steel mills. The Jellinbah and Lake Vermont PCI brands are said to have been priced at US$171/t FOB. These levels suggested the market may have reached close to bottom, at least for this quarterly contract business. Spot prices have been softening since the earlier deals were agreed, and although buyers were expected to seek lower Q2 quarterly contract prices in the coming weeks, a recovery in demand, particularly from China could help to maintain a floor on contract prices. Meanwhile, Wesfarmers was understood to have settled the price of the Curragh hard coking coal brand for Q1 2012 with the Japanese steel mills and other Asian customers at US$230/t FOB.
In the anthracite market, Korea’s Kowepo issued a tender seeking 100kt of Vietnamese anthracite for delivery during March to May. Specifications suggest the Genco is not necessarily seeking premium material, with a rather low minimum calorific value being considered. Vietnam is currently reducing its export tonnage as the country conserves the resource for its own consumption. This tender may be an indication of the new expectations of buyers.
The Asian region looks set to be the main driving force for coal this year with its major producers and consumers. Initial reports suggested a total of 360mt of coal was produced by the world’s largest thermal coal exporting country, Indonesia in CY2011. The Indonesian Coal Mining Association is understood to be forecasting an increase in output of around 30mt in 2012 bringing the total to 390mt as demand within Indonesia and in the Asian markets increases. Meanwhile in Australia, coal exports at Newcastle reached 114mt in CY2011 which was an increase of 11% compared with 2010. A further increase in exports is forecast for 2012, and production in New South Wales is also forecast to increase by as much as 50mt or 30% this year. While a long lull continues in the European coal markets, the worst appears to be well behind the Asian players now.
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.