Monthly physical indices – the story behind the numbers
Another month of steady US and Colombian coal supply, coupled with faltering global economic growth, saw physical coal prices fall further, depressing the ICIS monthly physical indices.
Asia's appetite for coal that does not match the specifications determined by the Standard Coal Trading Agreement (SCoTA) has severely reduced liquidity in both South African and Australian markets in April (see CSD 27 April 2012). Although Chinese domestic prices remained above imported coal, Chinese traders continued to "bargain hunt", picking up only sporadic, lower-quality, cheap coal cargoes.
A key industry event in Beijing in the first half of the month ended on a flat note, failing to improve liquidity as traders remained pessimistic over future demand (see CSD 19 April 2012).
The approaching monsoon season in India put a cap on demand for South African coal. High availability of cheap US and Colombian coal also continued to undercut South African prices, with traded levels falling below the $100.00/tonne mark.
As a result the ICIS FOB RB April '12 physical index settled at $102.83/tonne, down from the March '12 index of $103.534/tonne.
The Australian market was also quiet, with only two index-qualifying deals recorded over the course of the month. Japan remains the only country still interested in the 6,000kCal/kg FOB Newcastle coal.
But hopes that Japan will ramp up its coal-fired generation were unfounded as figures by the Federation of Electricity Power Companies (FEPC) of Japan showed that in the 2011 fiscal year, Japanese coal imports fell by 5.7% 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.
Such a lack of liquidity pushed the ICIS FOB Newcastle April '12 physical index to $101.25/tonne, from a March '12 index of $104.833/tonne.
The situation was similar in Europe where continuous worries over the future of local economies weighed sentiment down. Although the second part of the month saw an improvement in liquidity with several DES ARA deals reported, market participants said that the cargoes were most likely picked up by traders with short positions and were not an indication of increased demand.
Some market participants predicted an improvement in demand going into summer as European utilities are likely to favour coal over gas for power generation because profit margins for coal-fired generation remain good (see CSD 26 April 2012). However, as stocks remained high at ports and with utilities, the ICIS DES ARA April '12 physical index out-turned at $95.33/tonne, down from a March '12 index of $96.623/tonne. MV
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