Australian coal index edges to new low; utility buying bumps European index
The ICIS physical coal index for Australian coal remains the most under pressure of the three ICIS physical coal indices, as buying interest from Asia remains tepid on the spot market, while Atlantic basin prices rallied as utilities started buying with more gusto.
The South African index continued its rebound from the lows notched recently, but sources thought this was mainly because of producers refusing to drop prices much lower.
The price of 6,000Kcal/kg coal sold on a DES ARA basis was reasonably volatile during September, as a number of factors came into play. Utility buying, particularly by German companies, was one source of upward pressure, with 46 index-qualifying deals reported to ICIS during the month, up from 32 a month earlier.
One major utility that has dominated the sell side of the Europe swaps and physical market for the past five or six months also switched to the buy side, boosting prices further. The switch of sides might have been because of a threatened strike by the railway workers for Colombian freight company Fenoco, with the utility unwilling to get caught short amid a bullish power market and potential disruption to Colombian supply.
Freight prices have been a factor too. Chinese demand for iron ore kept freight rates high, and the availability of dry-bulk vessels in the Atlantic market has become tighter, pushing up the cost of transporting coal.
The ICIS DES ARA physical coal index gained 5% to close at $79.089/tonne from a month earlier.
Australian indices fall
The Australian spot market for coal sold on an FOB Newcastle basis remains under pressure. The decline of Chinese domestic coal prices continued for most of the month, pricing international coal out of the Chinese market.
But while rising freight rates globally were bearish for demand, they bumped up prices as coal sold on an FOB Newcastle basis tracked DES ARA prices. Another round of negotiations between Japanese utilities and Australian buyers for an annual supply contract, beginning 1 October, started mid-month. Sources thought this might also be a factor in the gains on Australian prices in the second half of the month.
The final price is usually a few dollars above the FOB Newcastle spot market. The price agreed for July ‘13-June ‘14 between Japanese utilities and Australian suppliers settled at $89.95/tonne, down $5.05/tonne from the annual negotiations for April ‘13-March ‘14, sources said in late June. Given the bearish path of prices since then, the next deal is expected to be lower again.
The ICIS FOB Newcastle physical index for coal for September ’13 was $78.311/tonne, a new low and down from $78.469/tonne in August.
South African activity limited
Finally, 6,000Kcal/kg coal sold from South Africa was under pressure from the weakness in the economies of some of its neighbouring markets, such as India. Coal sold on an FOB RB basis was pressured by weak Chinese domestic coal prices too. The key Chinese Bohai-Rim steam coal index touched five-year lows during the month, and with freight rates where they are, there is little incentive to sail South African coal to China.
But deal activity was limited in South Africa even if the number of index-qualifying deals rose to 14 from 7. Producers are reluctant to drop prices, sources said. And prices tracked the coal sold through DES ARA higher.
The ICIS FOB RB physical coal index for September ’13 was $74.613/tonne, up from $73.664/tonne a month earlier. Fionn O’Raghallaigh
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