Robust Chinese buying interest for spot cargoes of higher ash thermal coal at Newcastle port, and reports of heavy rain causing production problems to mines in Australia's Hunter Valley coalfield, were new drivers for the Newcastle spot market this week, market sources said.
These events had yet to filter through into the wider marketplace and affect Newcastle prices, apparently, as a parcel of FOB Newcastle thermal coal for delivery in July traded on-screen during the Asian trading window June 16 at $118.50/mt, about the same level as July-delivery trades on globalCOAL on June 1 and June 7.
"A lot of parties have booked cargoes to China in June and July and consequently there is not a lot of prompt material around at Newcastle. We are likely to see a lot of stems and cargoes going to China," said one market participant.
Market sources estimated that Chinese buyers have booked 2 million mt of Australian thermal coal in the Newcastle trading hub for shipment to China in the next three months, or 90-day spot trading window, that is July, August and September.
This quantity of higher-ash thermal coal from Newcastle port has been purchased off-screen, because higher-ash Australian coal does not fit the specification for globalCOAL's FOB Newcastle contract.
"It is a completely different specification to globalCOAL's [Newcastle] spec. All that coal traded into China is not of the same quality. It is like comparing apples to oranges," said a second market participant.
DISCOUNTS OF 'AT LEAST $10/MT' OFFERED
Many of the China-destined Newcastle cargoes are thermal coal with an ash content of between 17%-25%, which is significantly higher than standard contract Newcastle thermal coal of the kind preferred by Japanese buyers which typically has ash of up to 13-14% on a net as-received basis.
Price discounts of "at least $10/mt" were reportedly being offered to Chinese coal buyers on purchases of higher ash Newcastle thermal coal, according to one market source.
"It makes commercial sense at the moment, that's why China has been buying so many cargoes and freight costs are reasonable. Prices for domestic coal in China are currently at a two-year high," he said.
For 6,000 kcal/kg net as-received Chinese domestic thermal coal spot prices have risen to Yuan 890/mt ($137.50/mt) FOB Qinhuangdao this week, inclusive of 17% VAT, compared with Yuan 820/mt at the end of March, said market sources.
But the size of reported discounts to Chinese buyers was challenged by the second market participant who said: "Those three markets [Japan, South Korea and Taiwan] have all been buying off-spec at various discounts for higher ash thermal coal. But I have not seen $10/mt market discounts." A third market participant said that Chinese buyers were willing to pay more for Newcastle thermal coal and were now more active in the Australian thermal coal spot market.
"It is our understanding that their price idea is around FOB $118/mt on a 6,000 net as-received basis for high ash (20%) Newcastle cargoes, which means a CFR China price of around $130/mt," he said.
Japanese coal buyers were also heard in the spot market making tentative inquiries for Newcastle thermal coal in order to re-fuel their coal-fired power stations knocked offline by the country's March earthquake.
"They need to increase their baseload electricity production by 100%. Some Japanese power utilities are trying spot tenders to ensure they have good stocks for their base-load power generation," said a market source of Japanese coal buyers.
