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Australian coal contract prices falling despite rising exports

02 Oct 2013 18:08:08 | csd

Increasing competition, cost-cutting and supply overhang are expected to push Australian thermal coal contract prices to a low of $82/tonne in the Japanese financial year 2015, which lasts from April 2015 to March 2016.

However, by Japanese financial year 2018, rising import demand will lift prices back to $90/tonne levels, according to the Australian Bureau of Resources and Energy Economics (BREE) in its quarterly report on Wednesday.

In 2013 negotiations between Australian coal producers and Japanese utilities, the benchmark contract price for deliveries between April 2013 and March 2014 settled at $95/tonne, down from $115/tonne in the previous year. The decline, which was mainly the result of prolonged weakness in the spot market caused by global oversupply, continued throughout 2013, with each quarterly round of negotiations closing lower. According to market sources, the most recent negotiations – for deliveries between October 2013 and September 2014 – settled at $85.80/tonne on Wednesday, while June negotiations settled at $89.95/tonne.

However, while contract prices are falling, they remain well above the spot market price for FOB Newcastle 6,000kCal/NAR coal. ICIS data show the ICIS FOB Newcastle physical monthly index closed at its record low of $78.31/tonne in September, while the front-year financial contract closed at $85.05/tonne on Tuesday. “Japanese utilities are paying way over the top as normal,” one broker commented.

Exports on the rise

Although global demand lagged market expectations in 2012, Australia’s thermal coal exports increased 16% year on year to 171m tonnes, BREE said. Japan remained the primary destination for Australian thermal coal, importing 75m tonnes, followed by China, which increased its imports of Australian coal by 73% year on year to 34m tonnes. Although China traditionally prefers cheaper, lower-quality Indonesian coal, traders previously said low freight rates, as well as falling market prices, have made Australian coal more attractive to Chinese buyers.

In 2013, a number of new projects are set to lift Australian coal exports by a further 8% year on year to 184m tonnes, with the majority of additional export tonnes expected to be sent to China.

Furthermore, BREE said Australian thermal coal exports are expected to reach 271m tonnes in 2018, with China’s growing hunger for fuels again cited as the main driver behind the increase. Manca Vitorino

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