Physical coal comment: Australian cargoes up on tenders, but Europe weaker
More supply from Colombia and Russia pushed down the price of physical coal deliveries into Europe over the week, while South African deliveries also came under pressure. The bearish trend was only bucked by Australian cargoes, which sources said were underpinned by signs of emerging demand in Asia.
FOB Newcastle deals over the week showed renewed strength in the front winter and front months. FOB Newcastle cargoes for Q4 '11 and Q1 '12 were up by almost $2/tonne compared with deals struck the week before, trading around $126-128/tonne. This marks a return to the levels seen at the start of April, before a mid-month dip. FOB Newcastle June was also stronger than where it had been mid-month, gaining around $1/tonne to deal around $121.50/tonne. July deliveries were sold at similar prices.
One reason for the higher prices could be that key coal producing region Queensland is recovering slower than expected from floods that have closed mines since the first quarter of the year. Even though another coal prodcuer, Macarthur, announced on Thursday that it was lifting force majeure on its mines, analysts said that mining output remained vulnerable to disruption, especially with the next wet season starting in October.
Sources said the Newcastle prices had been supported by recent tenders in the Asian market as well as announcements from Chinese officials to state-run news agencies predicting fuel demand peaks in key regions over the summer as electricity needs soar.
China's national energy agency warned of power shortages over the coming months unless the country stocked up on coal, among other fuels.
This demand would be capped by the price of Chinese domestic coal, which is currently below the international market, and would be mainly for off-specification coal and possibly Indonesian cargoes, according to some sources.
Shipping movements should start to show more coal cargoes arriving in Chinese ports over the next couple of months, they said.
But not everybody thought the Chinese demand picture was that clear-cut. Fresh data on Chinese imports in the first quarter of 2011 showed a 26% decrease to 32.4m tonnes. Plans to consolidate Chinese coal producing regions could unlock more cheap domestic supply and curb imports.
In addition, the very fact that China is announcing it might be a coal buyer this summer made some traders suspicious. It is unusual for China to be so open about its purchasing needs, so the warnings could actually indicate the opposite − that China will be a coal exporter.
In contrast to the higher prices in the Australian and Asian markets, cargoes from Latin American, South African and Russian ports are trading at lower prices compared with last week.
Colombian mines, which were also hit by flooding earlier this year, now appear to have ramped up output again. The icy conditions that curbed shipping from some Russian ports have also started to ease.
This means that European utilities looking to stock up in the Amsterdam/Rotterdam/Antwerp area in view of German nuclear shut downs can easily call on suppliers, traders said. "Sure, the stock levels are not as high as they have been in recent years, but they are still reasonable," one source commented.
Power majors are currently believed to be stocking up on coal to offset a dip in nuclear generation in Germany, since part of the nuclear fleet has been permanently suspended. So far, renewable power generation has met much of the shortfall, but solar output is bound to decrease in winter, which could give a bigger role to coal, the main fuel in Germany's power mix.
But this demand has not been strong enough to stop DES ARA prices from falling. At $127/tonne, DES ARA June '11 was weaker by around $1/tonne compared with where the July contract had traded the week before.
South African cargoes were also cheaper, despite a planned maintenance to railways which will curb deliveries from the mines to the Richards Bay export terminal in late May and early June.
The FOB RB front months shed $1/tonne to deal around $123.50/tonne. Q3 '11 started to trade for the first time in about a month and was around $2/tonne from then, by $124.25/tonne. Q4 '11 also became active, trading around $126.0/tonne − down by $0.50/tonne from last week and $2/tonne from the start of the month. IS
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