Physical coal: Paper market remain strong despite first force majeures lifted
Australia
Newcastle coal was trading higher at the start of the week, compared with deals struck late the week before, despite news that force majeures had been lifted for two mines in Australia.
One May FOB Newcastle cargo was dealing $3.50/tonne higher on Tuesday, compared with the Friday before, hitting $129.00/tonne. It slipped $2.00/tonne in later trades, but prices were still higher week on week.
These cargoes dealt before news broke of Rio Tinto lifting force majeures on two of its mines in Queensland: the 4.2m tonnes/year coking and thermal coal Kestrel mine and the 12.0m tonnes/year thermal coal Blair Athol mine.
Most traders said they doubted expectations of more supply from Queensland had been priced into Newcastle contracts. The market is not yet clear if reopening these two mines is the first sign of supply picking up from the flood-stricken Queensland region, or if it is just a one-off event.
"If this is the start of a general trend, then I think there is space for Newcastle [prices] to weaken," one source said.
Exports from major Australian terminals still remain well below norms.
Most sources agreed it was in Australian producers' interest to keep force majeures for as long as they could during the ongoing annual contract negotiations with Japan. If prices remain high now due to restricted supply, producers could lock these levels in for the rest of the year.
Market sources have estimated that Japanese long-term contract prices could be struck around $145.00/tonne, compared with an average closing price for FOB Newcastle Calendar Year 2012 at $119.15/tonne in February in the paper market.
There was no doubt among traders that Australian producers face serious supply concerns due to the floods, but there was equally little hesitation to think that they would also use the tight supply situation as a leverage in negotiations.
Less tonnage traded than the week before, when lot size soared as high as 130,000 tonnes. This week, lot sizes fell back to the 25,000 norm.
Coal traders continue to eagerly monitor interest from Chinese buyers, who are expected to come into the market around now, but most admitted there was little sign of Chinese activity so far. Chinese buyers are still bidding far below market prices, sources said.
One participant said that Indonesian prices had fallen, while Chinese prices remained unchanged.
South Africa
A reported derailment on the train line to the Richards Bay export terminal on Friday added to ongoing congestion woes in the South African coal export market.
"Sure, there is still some congestion at Richards Bay, but I don't think a lot of tonnage will be immediately affected [by the recent derailment]," one source said.
Derailments are common in South Africa, due to thefts of power lines. A spokesman for the terminal was unavailable to confirm the derailment reports on Friday.
The South African terminal has suffered from congestion for a while and this has propped up the FOB RB paper market, compared with CIF ARA over the past weeks.
Liquidity appeared to be on the rise for cargoes with far-curve delivery. Two Q4 '11 FOB RB cargoes traded early in the week, at $117.00-119.50/tonne. This put the contract within the same trading range as was visible for front month FOB RB cargoes last week.
On the prompt, trades were executed on an index basis over the week, with four April '11 cargoes dealing at plus 1.00-1.05/tonne in a total volume of 325,000 tonnes. In early February, an April '11 index deal was reported slightly higher, at plus 1.25/tonne.
Europe
The physical market for cargoes with specified European delivery points continues to lag behind Australia and South Africa in terms of liquidity.
Only one DES ARA deal was reported over the week, an index-linked transaction at plus 0.50/tonne for Q4 '11 delivery. Last week, two DES ARA Q3 '11 cargoes traded at plus 0.35/tonne.
Traders said that at some point, European utilities would have to start stockpiling coal ahead of the Indian monsoon season and that this should give DES ARA demand a push. IS
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