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Australian coal stocks rise despite rail track outage

10 Dec 2012 15:50:37 | csd

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Coal volumes shipped from the Australian port of Newcastle fell slightly in the week ending on 10 December, declining just under 3% week on week to 2.7m tonnes, according to data from the Newcastle Port Corporation published on Monday.

The drop in volumes helped lift stocks at two coal terminals operated by Port Waratah Coal Services (PWCS) at Newcastle to 1.6m tonnes on 9 December, up 19% compared with last week, rail line operator Hunter Valley Coal Chain Coordinator (HVCCC) said. PWCS loaded 274,000 tonnes of coal less than expected.

An uptick in stocks comes as a surprise after six wagons of a coal train travelling from the Boggabri mine to the Newcastle port derailed on 26 November, and the Australian Rail Track Corp (ARTC) confirmed it would take weeks before the Boggabri rail track and bridge can return to service.

"The damage is quite extensive, including to the structure of the bridge itself as well as the track, and there lies a large repair and construction job ahead," ARTC said in a statement last Wednesday. "Based on these initial assessments, we estimate around three weeks will be required to undertake the program of work needed to return the bridge to operational service. We are currently forecasting a return to rail services by Christmas."

As a result, Australian coal producer Whitehaven Coal on Thursday said it may be forced to halt production at its Narrabri underground thermal coal mine in the next couple of weeks, if the New South Wales state government does not grant a permit to transport more coal by road while the rail line is repaired.

"Whitehaven anticipates that without the ability to transport coal from site, coal stockpile capacity at Narrabri will be reached during December 2012 and operations at the mine would need to cease. This would result in lost production," the company said in a note to the Australian Securities Exchange last Thursday.

Australian coal prices fall

But although Narrabri coal mine produces high energy thermal coal, prices of FOB Newcastle 6,000kCal/kg NAR coal did not reflect the potential supply problem.

By Friday morning, the bids and offers reported to ICIS suggested that levels were softening - not only on FOB Newcastle but also across the three main international hubs - and a flurry of prompt FOB Newcastle physical deals were completed around $1.00/tonne below index levels.

Market participants said prices fell because sellers assessed FOB Newcastle levels of $1.00/tonne below the index as attractive, considering the market had been averaging $5.00-6.00/tonne below index for months.

"Basis has come from minus $6.00/tonne to minus $1.00/tonne in a month. I think people are thinking now is a good time to get rid of some length," one London-based physical trader said. "The momentum has definitely come from the sellers' side."

The trader also stressed that FOB Newcastle remains a marginal SCoTA (Standard Coal Trading Agreement) market and therefore often trades separately from market fundamentals. "It is difficult to sometimes assess what the FOB Newcastle market represents. It doesn't seem to be a genuine reflection of the Asian market, so it can be difficult to see what exactly you're trading. It's a niche market used by traders looking for opportunities," one said.

A second trader agreed that the market was "niche" but said that while the number of trades reported on Friday seems high, the volumes were too small to indicate someone was trying to sell off their length.

"There is 150m tonnes of coal exported through the Newcastle port over the course of a year. And what we are seeing are clips of 25,000 tonnes," the trader said. "If you really wanted to get rid of some length, you could try selling the coal into China on capezise [150,000-tonne] vessels."

South African stocks

Meanwhile, stocks at South Africa's Richards Bay Coal Terminal (RBCT) were also higher than average, at 3.7m tonnes at the end of November, despite the fact that the tonnes shipped rose to their highest level this year so far.

RBCT said on Monday stocks declined just 6.5% (or 260,000 tonnes) month on month, but were still 12% above the average stock level for November, recorded over the past four years.

Although the terminal shipped 6.5m tonnes over the course of the month, up 17% month on month, volumes received also rose to 6.1m tonnes from the 5.5m tonnes received in October.

Despite the high stock levels and lack of significant demand for high-quality Richards Bay coal from either China or India, FOB RB prices are currently around $10.00/tonne higher than they were a month ago, with traders blaming short-covering and strong buyers' interest for the rise.

A January-loading FOB RB cargo last changed hands at $91.00/tonne on 4 December, up $10.40/tonne from its record low at $80.60/tonne recorded on 1 November, according to ICIS data, despite participants repeatedly stressing such highly priced cargoes would struggle to find buyers in Asia or Europe. MV

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