Asian coal trade 2011

The Asian coal industry has had a very eventful start to 2011 with natural phenomena impacting producers and consumers alike, from the earthquakes in Japan and New Zealand to the major cyclone and flooding in Queensland. The industry is proving itself once more to be very resilient, and there has been much market activity during the first quarter of this year. Last year was a positive one for coal trade in Asia after some dips were recorded in 2009 in parts of the market as seen in the accompanying charts.
East Asia continues to be the main region for coal market activity at the time of writing, with several enquiries for thermal coal being reported. China’s recent capping of the coal price, however, could be making buyers optimistic that the international spot market could soften in the coming weeks, and orders for substantial tonnage may be delayed. Ongoing coking coal contract talks may see some monthly contract deals finally emerge for BHP Billiton in Japan with signs that the buyers are beginning to concede to the shipper’s new terms.
The Japanese thermal coal consumers are reported to be receiving cargoes almost as normal, but at different coal ports in the aftermath of the earthquake and tsunami. Those facilities damaged in the event in the northeast will take some time to repair or rebuild. Asian spot market demand, however, had been rather subdued in early April as buyers hoped for prices to soften from the previous highs.The Korean gencos are said to have been more active, particularly in South Africa. Meanwhile, China has been planning to create a coal reserve stockpile of 5mt (million tonnes) to mitigate the effects of demand and supply fluctuations. If the plan works there could be less China- related volatility in the international spot market in future, although 5mt is a small proportion of China’s coal requirements and would be rapidly used up in the event of a supply crisis. In April, Asian markets have been reported to be seeing a tightening of availability of bituminous coal for spot deals, reflected in limited interest in Taipower’s tender seeking four Capesize cargoes for delivery during June to August.
On 11 March, Japan suffered its strongest earthquake on record at 8.9 on the Richter scale, causing significant damage in the north east of the country. With regard to the energy and coal sectors there were widespread power outages following the quake, but further damage was caused by the following tsunami along the coast. Nuclear power generation shut down Indian demand. Tohoku EPC’s port at Soma sustained severe damage in the tsunami. Coal stockpiles were washed away, and the utility declared force majeure on coal deliveries due in the following weeks. Coal terminals at Hachinohe, Kashima, Ishinomaki, and Onahama were expected to be closed for several months due to the tsunami damage. The combined coal capacity of the facilities amounts to around 13.5mtpa (million tonnes per annum).
In early March, contract settlements on coking coal supply were the main topic of interest, with BHP Billiton setting a price signal in Japan to the rest of the international coking coal market. A price increase of about 56% was achieved on the traditional reference brand from the Goonyella mine in Queensland. There were still questions, however, on the actual total tonnage that can be delivered at this price within the quarter due to the condition of the mines and infrastructure in Queensland, and that was also before the Japanese earthquake happened. It is likely that some tonnage at these prices will be carried over from the March to June quarter. South African exporters continued to enjoy firm demand from India with 1.5mt shipped there in January, while China has also been taking substantial quantities. Shipments there have been steady recently at around 450–460kt per month. The US exporters have also been attempting to tap into the Asian market more and more, but have been at a disadvantage due to the lack of a west coast export facility. This may now be resolved, with an announcement in March that development work is to begin soon.
With regard to general coal industry developments there have been some significant moves in the past few weeks. In Australia, Canada’s Western Coal has applied for further exploration tenements in the environmentally sensitive Margaret River region of Western Australia. The six applications are awaiting approval by the state government amid public opposition.
China’s government is understood to have ruled that the price of domestic coal supplied to power generators is to be capped at US$87.00/t basis 5,500kcal/kg NAR (net as received). This is the level set in 2010, and government inspectors will be monitoring the contract terms and deliveries this year.
At the time of writing, BHP Billiton was expected to meet with customers at Steel Authority of India Limited and RINL soon. Negotiations on contract deals for coking coal were due to continue, with BHP Billiton set on moving to monthly terms under its new strategy. The Goonyella reference brand is currently priced at US$330/t FOB (free on board) following recent settlements. Meanwhile, the shipper is rumoured to have agreed some provisional pricing at US$330/t FOB for a monthly term with some Japanese steel makers who are said to be still
automatically as the quake was detected, but there were subsequent problems leading to a declaration of a nuclear emergency by the government. The explosions and radiation leaks at the Fukushima plant have caused ongoing problems during the past weeks. All ports were closed, and there was widespread damage to shipping and infrastructure, with the tsunami penetrating up to six miles inland in places. Early reports suggested that some coal cargoes may have been affected, but the nature of the disruption became clearer in the following weeks.
Unlike the Kobe earthquake in 1995, it was apparent that this event was not centred as close to economic centres and although there has been much loss of life, the impact on business was considered likely to be less severe and a recovery is likely to be more rapid. In a catalogue of natural phenomena impacting the international coal industry around the world in recent times, this is the latest and the most severe to affect a major coal consuming country. While coal demand may increase if there are problems with nuclear power facilities in Japan, there was expected to be disruption to cargo receivals in the short term and this has proven to be correct. The Tohoku region remained vulnerable to further tsunami, and coastal regions across the Pacific from California to Chile were hit by the initial tsunami. Aftershocks have continued during the weeks since 11 March.
As the impact of Japan’s earthquake unfolded in the following week, it was anticipated that following a medium-term decrease in demand for coal, demand for fossil fuels will increase in the longer term due to the loss of nuclear generating capacity. The extent of demand change is still unclear, however, as the total effect on the economy has not yet been quantified. Thermal coal demand is expected to increase as the situation begins to improve over the coming year, while demand for coking coal could be subdued in the near term as production was suspended at some steel mills.
Some coal-fired power stations have been damaged, with Tohoku EPC’s Haramachi and Soma Joint Power’s Shinchi power stations being among the worst affected. A number of coal ports have also been damaged but alternative receival options were quickly being considered where power stations were able to continue to operate. The spot markets were unsettled, with swings from day to day depending on the latest news and speculation to circulate the markets. There have been reactions to the Japanese nuclear situation elsewhere in the world, and Germany suspended power generation at seven ageing nuclear power plants for three months. Spot markets in the Asian region softened as enquiries eased amid the uncertainties, but Atlantic prices firmed, with South Africa also enjoying continuing resisting any moves towards a monthly contract on a regular basis. Although progress has been slow for BHP Billiton, the signs currently suggest that the Japanese and other major Asian customers may have to concede to these terms sooner or later.
India’s Hindalco has been back in the market seeking another 60kt cargo of South African thermal coal for prompt delivery. At the time, the buyer was rumoured to be hoping to secure tonnage at well under US$120/t FOB basis 6,000kcal/kg NAR.
Korea’s Kospo has been seeking a Panamax cargo of coal for delivery to the Hadong power station in June. The genco will use its electronic platform for the tender, and appears to be
entering the market every few weeks to enquire for a Panamax cargo this year. Coal with a CV (calorific value) of 4,500kcal/kg NAR (min) was required on this occasion, and offers were due by 13 April. Meanwhile, Kewespo was rumoured to have received offers of around 5Mt of coal following its enquiry seeking 1.04mt in spot and long-term business.
Malaysia’s TNB Fuel has been in the market with a quick closed tender seeking 260kt of coal in 4x65kt cargoes for delivery in May and June. Offers were due by 4 April.
In Australia, heavy rain disrupted coal railings to Abbot Point in early April, and high winds stopped coal loading at Dalrymple Bay Coal Terminal and Hay Point. Coal railing to those ports has also been affected by maintenance work on the Goonyella line. Closures on that line were also planned during the first half of April. Meanwhile, after three months of closure on the Western line, the first coal train delivered a cargo from the Surat Basin to Brisbane on 28 March.
In Mongolia, Noble Group has increased its interest in the country’s expanding coal mining sector by adding 5.24% of Aspire Mining to achieve an 8.6% stake. Aspire is developing the Ovoot coking coal project which currently contains a resource of 330mt of coal.
Coal India Limited may come to market seeking imported coal as production during this financial year is expected to remain level with FY2010 at 430.5mt.
Korea’s Kewespo issued a tender seeking at least 1.04mt of coal. At least 260kt is required under a three-year contract, and 780kt is required during May to July this year. Four coal types are required in the spot enquiry with specifications including CV in the range 3,700–5,800kcal/kg NAR. Offers were due by 4 April.
Taipower has been seeking 1.26mt of sub-bituminous coal for delivery in 18 Panamax cargoes during May to September. Offers were due by 12 April. Taipower was also reported to be back in the market seeking 560kt of bituminous coal for delivery in four Capesize cargoes during June to August. The previous tender was unsuccessful, and offers for this one were due by
11 April. In the Australian coking coal market in early April, the offer
price for hard coking coal in Queensland was reported to be around US$327.50/t FOB which is around US$1.00/t FOB above
the average price recorded in March overall. A week earlier, prices had been about US$332.50/t FOB. Some improvements in transport links in southern Queensland were offset by further weather disruption to supply in the northern ports and rail lines. Prices are expected to remain around the same level for the foreseeable future.
In Australia, Xstrata is rumoured to have settled the JFY2011 annual contract price of thermal coal with Japan’s Chugoku EPC at around 30% above the previous level. Xstrata was reported to be seeking US$145/t FOB basis 6,700kcal/kg GAD (gross air dried) while the buyers were bidding around US$125/t FOB. It appears that the price agreed was close to the US$130/t FOB anticipated by market players up to the final stages of negotiations.
Taiwan’s Formosa Plastics issued a tender seeking 400kt of coal (CV 6,000kcal/kg NAR min) for delivery during 1 June to 30 November. A further 300kt of coal (CV 5,600kcal/kg NAR min) is required for delivery during 1 June to 30 September. Offers were due by 29 March. Meanwhile, at that time Taipower was reported to have purchased eight Panamax cargoes of sub- bituminous coal following its tender seeking 12 cargoes. The evaluated price range was reported to be US$137-140/t CIF suggesting a decrease of some 5% in the evaluated price compared to the previous purchases made in late January. Successful shippers included Advance (3 cargoes), Bulk Trading (1), LG (1), Right Link (1), and Vitol (2). Delivery was required from 30 March to 22 July.
In March, India’s Binani Cement is understood to have been offered 50kt of South African coal for prompt delivery. The price was rumoured to be around US$122/t FOB basis 6,000kcal/kg for those markets. A discount from the prompt spot price was offset by somewhat lower sulphur requirements.
The Australian shippers have been seeking a quarterly contract price for ultra low vol PCI (pulverized coal injection) coal with their Japanese customers of about US$280/t FOB and
NAR.Another industrial consumer,Tamil Nadu Newsprint was reported to have been offered South African tonnage as well as Indonesian following its enquiry for 160kt of coal for delivery during Q2 2011. The prices have not been confirmed but are believed to be close to the then current e-coal.com spot prices quarter after talks were prolonged by the need to analyse the impact of the earthquake.
BHP Billiton is to invest US$2.9bn on developing its coal operations in Australia. US$400m is to be spent on expanding the Mt Arthur thermal coal mine from a 4mtpa operation to
are now understood to have agreed a reference price of US$275/t FOB for their ultra low volatiles material in the April to June quarterly contract with the Japanese and Korean steel makers. This equates to an increase of some 53% in price compared to the US$180/t FOB achieved for the January 24mtpa. BHP Mitsubishi Alliance is to invest US$5bn in the Daunia and Broadmeadow coking coal mines, and expansion of Hay Point Coal Terminal.
Russia’s Raspadskaya mine is for sale following a troubled year in which 91 workers were killed by gas explosions. A total of 7.2mt of coking coal was produced in 2010. SUEK has also
announced that it is to begin construction of a new 10mtpa coal terminal at Ust-Luga this year, with commissioning due in 2016.
In March, BHP Billiton Mitsubishi Alliance (BMA) was rumoured to have decided to offer the Indian steel makers a monthly contract price of US$300/t FOB for hard coking coal. The move follows an apparent stalemate in negotiations with the purchase their full requirement of coking coal during the past couple of years. Meanwhile, some shipments of coking coal to the Japanese were reported to have been diverted to Korea and China following the earthquake and tsunami.
In early March, Korea’s Kosep was rumoured to have
Japanese steel makers who are understood to have refused to entertain the idea of monthly pricing. Quarterly contract pricing has been reported earlier with Anglo at US$330/t FOB in Japan. The Indian buyers may be under greater pressure to agree with BMA as they have had a long period of unsuccessful tenders to be about US$102.50/t FOB adjusted to basis 6,700kcal/kg GAD. The price of Chinese 10.5% ash metallurgical coke was around US$575/t FOB in March which remains above the
previous month’s average price of just under US$570/t FOB. Meanwhile, 12% ash product was on offer for about US$565/t FOB. That price was about US$20/t FOB higher than the
purchased several cargoes following its tender seeking at least 300kt of coal for delivery during April to June. The price was unconfirmed but was believed to be around US$104/t FOB basis 6,700kcal/kg GAD. Meanwhile, Kospo purchased a Panamax cargo of sub-bituminous coal following its tender. Delivery is required between April and June, and the price was believed to average price in January. For comparison, Japanese product was priced at about US$485/t FOB which is around US$15/t FOB higher than the average price in January. The large increases in the price of metallurgical coke seen since late last year appear to have slowed a little, but with higher prices predicted for hard coking coal this year,
there could be another upward movement in the metallurgical coke price.
Japan’s Joban Joint Power received a Panamax cargo of Canadian thermal coal in March for the first time in some ten years. Price details have not been reported, and the utility is known to be looking at suppliers in the Americas this year having re-established links in the USA and tested Colombian coal last year. There were, however, some reports that the Colombian material tested by some Japanese consumers had not given the results they had hoped for which led to questions about the specifications of the coal being supplied. European consumers were apparently rejecting such material at that time. Market observers are watching how the Canadian material behaves at the Nasko power station.
In Indonesia, market players are understood to have expressed concern that coal upgrading facilities will not be completed in time to cope with the ban on exporting low grade coal from 2014. The government has been notified of the findings and may need to extend the deadline beyond 2014 if the facilities are not ready by then.
The Chinese government is to extend its suspension of issuing new coal exploration licences by two years in an attempt to cool what it perceives as overheating in the coal exploration sector.
There have been reports that incompatible handling equipment has been damaging rail wagons at Russia’s coal ports.
The problem has become more severe during the past year, with thousands of units damaged. As a result, the rail operator, First Cargo needed to increase charges to cover the cost of the damage to wagons carrying coal and this is likely to affect export price margins.
In February, coking coal supply was tightened further by another natural phenomenon to affect the coal mining industry around the world. With most of the previous disruptions caused by heavy rain, flooding, and high winds, there was the earthquake in New Zealand which has disrupted rail transport and shipping of coal. The earthquake in Christchurch caused disruption to west
coast coal railings, and operations at the port of Lyttleton. Solid Energy continued to produce coal, but this was being stockpiled until the situation is resolved.
Dr Tim Jones is Director of e-coal.com Consultancy and Editor of the weekly publication Coal Market Intelligence which covers 11 spot markets worldwide, gives key information on the latest deals and tenders, company news, people and jobs, industrial relations, and ports, shipping, and freight rates.