Physical coal: Bears dominate as Chinese conference ends on a flat note
Bearish sentiment continued to dominate the physical coal market in week 16 as price levels slipped lower across the three main hubs. Activity was concentrated strongly in the European market where high supply weighed down the price. Elsewhere, demand for coal that matched the standards specified by the Standard Coal Trading Agreement (SCoTA) stayed low, weighing on prices.
Sources said the key industry conference in Beijing, China in the first part of the week had failed to improve liquidity as, despite traders expectations, few deals were concluded during the event.
Participants said the underlying sentiment of the conference was bearish with some traders even saying they were "pessimistic" about demand as global economic difficulties continue.
However, even if demand was to pick up, traders agreed that China would buy mainly non-SCoTA specific coal in bilateral deals (see CSD 19 April 2012).
One source went as far as to say that with liquidity for high quality coal falling, the benchmarks "may need to adjusted" to include the more liquid types of coals.
A second source agreed, saying on Friday that SCoTA specific coal was dying out. "We need to reinvent ourselves," the source said. "Off-spec Australian, Colombian and US coal are the hot stuff at the moment."
Looking ahead, one source said that with traders only just returning to their desks after the conference, activity could improve in the coming week as they "digest what they heard". But others were less certain, with one saying Chinese demand might come back at the end of the third quarter or beginning of the fourth.
"Sentiment is bearish with [the] Chinese economy not as good as it was," one trader said. "They still have interest, but it's all about the price. They want it cheap."
A single index-qualifying FOB Newcastle deal was recorded so far this month, with June '12 trading in 75,000 tonnes at $102.25/tonne on Tuesday, $5.75/tonne below the last recorded June deal at $108.00/tonne on 28 March, according to ICIS data.
Market participants said Japan was the only country still in the market for high quality Australian coal.
However, figures published on Friday by the Federation of Electricity Power Companies (FEPC) of Japan, show that in the 2011 fiscal year, Japanese coal imports fell by 5.7% year on year to 49.2m tonnes from 52.2m tonnes imported in fiscal year 2010. Although thermal power generation rose by 25% year on year, most of the lost nuclear power generation was compensated with an increase in LNG demand, figures show.
DES ARA June '12 contracts traded steadily throughout the week, with price levels falling from a deal done at $97.00/tonne on Monday to trade at $95.25/tonne on Thursday afternoon.
Although market participants said coal burn was higher than normal for the time of year - on account of the positive clean dark spreads - utilities' demand remains low as they "burn down existing stock levels", one source said.
According to Britain's National Grid data (collected by ICIS at 16:00 London time each working day) coal-fired power plants produced an average 46% of the country's total power generation throughout this week, compared to an average 27% share in the same week a year ago.
But the reason for the week-on-week uptick in traded tonnes was down to the time of the month, one source said, as participants nominate the origin and terms of the contract around 45 days before the cargo is due for delivery: "It's now the middle of April and around 45 days from when June is delivered," one dealer said.
The source added that the cargoes traded this week were most likely bought by traders and not by utilities, and can not be considered to be a result of higher demand.
However, a second source said the falling price levels were most likely the result of some market participants being stuck with cargoes they didn't really want, and deciding to sell them off at low prices. MV
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