Asian coal buyers raise liquidity of FOB Newcastle swaps market

27 June 2014 15:59 Source:ICIS

An increase in spot buying from Asia has caused traded volumes for the Newcastle financial coal market to rise by 13% for the first six months of 2014 compared to the same period last year, according to ICIS data.

Between January and June a total of 2,270 tonnes were traded on the Newcastle financial coal market, up from 2,005 tonnes for the same period in 2013.

Thermal coal buyers in China, Japan, Taiwan, India and South Korea have used the FOB Newcastle  swaps coal market as a benchmark for the Asian Pacific for several years and liquidity has increased as they use the contract to hedge against volatile physical thermal coal prices.

Analysts have pointed to the Indonesian governments curb on illegal coal mining at the beginning of this year, which has lowered supply from the country and pushed buyers to the spot market in Australia to replenish inventories.

Indonesia is also considering new regulations to limit coal production and tighten controls on exports to prevent oversupply in the global market and further pressure on prices. New rules could be introduced in July, sources said.

“There has been an improvement in demand for Australian coal, due to lower supply coming out of Indonesia and the new anti-pollution regulations related to coal qualities expected to be imposed in China and the coal import taxes in South Korea,” said Diana Bacila, analyst from Norwegian based energy analysts Nena.

One coal trader said Japan has had an increasing interest in buying coal as the cost of shipping coal from there [Australia] is getting cheaper.

“The main reason Newcastle spot volumes are up is simply that total Australian export volumes are growing strongly, while the Japan contract market has remained far more stable (and Japan is the main buyer of Newcastle 6000kcal coal). This means that a growing portion of material unable to sell on contract ends up on screen for spot sale,” said Stefan Ljubisavljevic, coal analyst at Macquarie Securities. Stacy Irish

By Stacy Irish