Newcastle sellers hold on to spot tons in lead up to Japan talks

Date Mar 3, 2010
Country Japan-Australia
Category Market - Energy/Resources

Asian coal buyers are considering offers for lower cv Indonesian thermal
coal at $72-$75/mt FOB on a 5,800 kcal/kg gross air dried basis in
preference to 6,300 kcal/kg GAR Australian thermal coal which was trading at
$94- $95/mt FOB Newcastle for prompt delivery cargoes this week.
Market participants said there had been very little buying interest from
Chinese coal buyers since the end of the Lunar New Year holiday on February
22.

"No sign from the Chinese yet -- I suspect it will take a few days for them
to settle back in from their vacation," said one market participant.
Commenting on buying interest from China a second market participant said;
"There isn't a lot yet, as it's only a few days since the Chinese New Year
finished."

Another market participant said that spot Newcastle prices were "too high"
for Chinese buyers. They may have turned their attention to Indonesian
thermal coal which was more competitive than Australian coal on an adjusted
calorific value basis.

He reported seeing significant buying interest for Indonesian 5,800 kcal/kg
GAR thermal coal though sellers wanted $72-$75/mt while buyers were willing
to pay only $69-$70/mt FOB.
"There is some buying interest for reasonable quantities of Indonesian coal
which is more competitive than Newcastle. Australian thermal coal is getting
support from high coking coal prices," the third market participant said.


An April delivery cargo of FOB Newcastle coal was bid on-screen at $92/mt
against an offer at $115/mt on globalCOAL during Asian trading hours
February 24. Later delivery cargoes were bid on-screen at $75/mt for Q2 and
$73/mt for Q3.
Australian thermal coal producers were in no apparent hurry to sell to spot
buyers given they are in the middle of price negotiations with Japanese
power utilities for annual contracts that start delivery on April 1.

There was an unconfirmed report February 24 that the contract talks had
started with Japanese utility Chubu Electric receiving an initial price
offer of $100/mt FOB Newcastle.

"Australian producers don't need to give price discounts by selling their
coal on the spot market.

Japanese coal buyers are good payers and fantastic counter parties," he
said.
He expected Newcastle spot prices to remain strong until Japan settled its
annual price contracts. "Then Australian producers will rush to place tons
of Newcastle coal with Korean and other buyers' tenders," he said. Wet
weather in Australia's coal producing regions over the past few weeks has
helped support Australian thermal coal prices, as has congestion at eastern
Australian coal ports, said market sources.

"There has been a lot of rain in Queensland and New South Wales which has
affected the market. And, there is a lot of backlog at Australian ports,"
said the second market participant. "Buyers have to wait for cargoes or else
search for cargoes at other ports," he said.

Xstrata's Rolleston thermal coal mine was expected to resume shipments from
Gladstone port in mid March after succumbing to flood water from heavy
rainfall. The open cast mine produces around 500,000 mt/month of export
coal.

Xstrata confirmed February 24, that its "force majeure remains in place" for
Rolleston.
"We are still going through the recovery process of removing water from the
pit," said a company spokesman by telephone. The discharge of floodwater
from mines is subject to strict environmental protocols in Queensland.
The Newcastle market's current tightness was expected to endure until April
or May, sources said.

News Source : Issue 960 / March 1, 2010 / Platts-International Coal Report -
copyright The McGraw Hill Companies