Oversupply pushes some physical coal indices to new lows
Atlantic basin physical coal prices have rallied from their lows at the start of April as buyers emerge, but not by enough to lift the DES ARA index. Pacific basin prices, meanwhile, have been driven lower as sentiment about Asian demand has turned sour.
At the beginning of April, DES ARA cargoes were trading below $80/tonne as Colombian supply started to trickle back to the Atlantic basin. Several disruptions, including a strike at Colombia's biggest miner, Cerrejon, had severely disrupted supply from the country in the previous few weeks.
As prices dipped, buyers emerged in the Atlantic basin, with utilities looking to stockpile. In April, 27 index-qualifying trades for 6,000Kcal/kg NAR coal were reported to ICIS - a massive increase from the four recorded during March.
As April progressed, sources told ICIS the return of Colombian supply was not going as smoothly as it could and that it had yet to reach full export capacity. This, along with the unwillingness of Russian producers to sell at DES ARA prices, supported prices in the Atlantic basin as the month progressed.
But, with prices moving up from such a low position, the ICIS DES ARA index was pegged at its lowest level ever. For April, it stood at $83.023/tonne, down from $84.836/tonne for March.
Southern hemisphere decline
The ICIS FOB RB index also weakened, although, in contrast with Europe, the South African physical market showed strength at the start of the month before tailing off towards the end.
Indian buyers emerged until at least mid-April, propping up the price of cargoes.
In the second half of the month, however, the outlook changed. Indian buyers started to disappear, which sources said at the time was caused by the start of the subcontinent's monsoon season, due in late May, discouraging the buying of more May-loading cargoes.
More downward pressure came in mid-month from the Coaltrans conference in Beijing, indicating likely low Chinese demand. Participants said the conference's tone was bearish, with deals signed during the gathering amounting to less than 1m tonnes of coal, about half the 2m tonnes said to have been dealt at last year's Coaltrans.
Prices started to dip at FOB RB in the second half of April. The ICIS FOB RB April '13 index was $81.661/tonne also a new low and down from $83.812/tonne for March.
The prices for cargoes at the FOB Newcastle market in Australia were mixed in the first half of the month. In the second half, they started to drop significantly.
On behalf of their respective peers, Australian mine operator Xstrata and Japanese utility Tohuku Electric agreed on $95/tonne as the price for an annual coal supply contract from the start of the financial year in April.
The contract settlement was $20/tonne below the price agreed last year. The negotiations, which dragged on until 11 April, had supported cargo prices to an extent as market participants waited on the outcome.
The emergence of a more bearish outlook for Chinese demand also put pressure on the physical price of Australian coal.
The ICIS FOB Newcastle April '13 index settled at $88.152/tonne, a 1.6% drop from a month earlier. Higher prices earlier in April prevented the index level from falling further.
The April '13 index is also far off the lows set by the October '12 and November '12 indices. Fionn O'Raghallaigh
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