It won’t be for the first time that the phrase “what a difference a
year makes” has been used when considering the international
coal industry. The situation is looking far more positive at the
start of 2010 than it was in January 2009 with coal prices having
firmed and money having become available once more. Many
coal shippers are predicting growth over the next few years, and
in the international market it is India and China that are
regarded as the main growth forces this year. Recent forecasts
indicate that around 150mt (million tonnes) of coking and
thermal coal could be imported by China in 2010, with growth
continuing over the next five years. Traders are gearing up to
take a share in this market, and Colombian coal has started to
be shipped to China. South African coal is also moving into
China based on shipping intelligence indicating fixtures over the
coming months. Freight rates have ended the first week of 2010
generally lower than they were at the close of 2009. The severe
weather in parts of Europe and China, as well as the usual
winter freeze elsewhere appeared to be having some impact on
business according to shipping sources. Power station coal
stocks are also being depleted in northern China in particular.
China is reported to have been rapidly increasing its
consumption of thermal coal as the northern winter approached,
and recovery continues in the economy. Coal stocks have been
reduced substantially in some areas, with power stations having
only just over a week’s supply in some cases. South African
shippers are hoping for greater competition for their coal
between India and China in 2010, which could lead to firmer
prices and additional tonnage sold. One Indian cement maker
alone is rumoured to be planning to double its imports of South
African coal to around 1mt in 2010. In the freight market, rates
decreased significantly over a week as charterers held off ahead
of the holiday season. Shipbrokers have commented on the
volatility in the freight market at present and are expecting this
to continue for the foreseeable future.
As markets approached the holiday season, the thermal coal
spot price in the Atlantic firmed while a slight softening was
noted in the Pacific market. South African sources indicate that
enquiries from China have been continuing, and although the
spot price is at a discount to Australian prices at present, the
activity appears to be related more to contract tonnage
opportunities for 2010 rather than spot business. The current
spot price level would probably be used as a negotiating point
for the buyers for China who expect prices to be firmer during
2010 than at present. Reports indicate that clean coal
technologies have been rejected as an alternative to clean energy
initiatives by the delegates at the conference on climate change
in Copenhagen. This could throw into doubt future financing of
clean coal technology projects such as carbon capture and
storage. Freight rates softened again as fixings decreased ahead
of the year end.
European demand for thermal coal remained thin as the
winter season set in, despite signs of depleting coal stocks at
some power stations. The smaller South African coal miners are
understood to be seeing tight margins amid the current market
as their production costs rise, threatening investment in
development and infrastructure. Meanwhile, coal stocks at
Richards Bay have been decreasing and were around 2.6mt at
the end of December 2009. Chinese buyers are reported to be
looking at purchasing contract tonnage of thermal coal for
delivery in 2010 according to players in the Richards Bay market.
According to the latest data from the government, China’s coal
production had increased by 11.4% YTD to 2.42bnt by 31
October compared with the same period in 2008. Recent
market reports indicate that Mongolian coal producers have
been undercutting the spot market by 15–20% in order to gain
market share for thermal and semi-soft coking coal. Parcels
were relatively small, however, and this situation is not expected
to continue for long if traders’ reports of low prices are to be
believed.
China remains at the forefront of influence on the coal
market, and there have been a number of significant
developments there in the past few months. The government, in
the form of the National Development Reform Commission has
announced that the annual coal fair will no longer be held. The
Commission is understood to be encouraging thermal coal
producers and power companies to negotiate supply contracts
on an individual basis rather than at the traditional coal fair
which hosted huge numbers of industry players. When the
government eased its involvement in coal contracts for last year,
however, there was a stalemate and agreements took up to 10
months to be reached.
China’s aim of securing supplies of coal from Australia has
moved another step closer with Yanzhou Coal gaining approval
from Chinese authorities for its A$3.5bn takeover bid for Felix
Resources. Yanzhou will acquire a stake of around 15% in the
exporter group controlling Newcastle’s third coal terminal
currently under construction. Felix operates Minerva thermal
coal mine and Yarrabee thermal and PCI (pulverized coal
injection) coal mine in Queensland, and Ashton coking coal mine
in New South Wales. There is also a 600mt resource within the
Moolarben project in the Hunter Valley.
Sales of Colombian coal to China continue to be reported
following the first large deal at the end of 2009, with the latest
being two Capesize cargoes dealt by Glencore. Loading is
required in February and March. Reports indicate that
Drummond has shipped three Capesize cargoes since December,
CMC four Capesize cargoes, and Vale three Panamax cargoes.
Colombian shippers have been finding Europe and the US
markets a challenge for several months now, and the Chinese
demand has been a welcome development. The metallurgical
coke market has been active outside of China already this year,
but trade in Chinese material remains thin in the export market.
Reports suggest sellers are asking around US$415/t FOB (free
on board) for 12% ash material while 10% ash product is on
offer for about US$435/t FOB. This continues the firming trend
over the past few months although little export business has
been apparent. For comparison, Japanese sellers are reported to
be asking about US$355/t FOB for 12% ash material which is
understood to be moving in the Pacific markets.
Environmental issues have gained a higher profile recently as
the conference on climate change took place in Copenhagen. In
Australia, it appears that the reported plan by Exergen to export
brown coal from Victoria to India has been unsuccessful due to
political concerns over environmental impacts. Climate change
and emissions are currently very high profile issues again, and
Australia will hold its government elections in 2010.
The steel sector continues to suffer in some cases despite
the improvements seen in 2009. Corus has announced that the
Teesside plant in the United Kingdom is to be mothballed due to
excess capacity in the global market. The coke ovens are to be
idled, with 1,700 jobs being lost overall. A major customer
cancelled a contract last May which has led to the decision by
Corus.
In recent market news, in Australia a Panamax cargo of coal
was reported sold for US$95.75/t FOB Newcastle basis
6,700 kcal/kg GAD in January. Loading is required in March.
Buyers were understood to be prepared to pay around
US$96.00/t FOB same basis if suitable terms are on offer.
Another 25kt cargo was reported sold for US$99.00/t FOB with
loading required in March. Two 25kt cargoes of coal were
reported sold for US$100/t FOB basis 6,700 kcal/kg GAD.
Loading is required in March. The spot market has been rising
rapidly during January as activity took off again following the preholiday
period. Reports from China indicated that buyers were
unable to secure any new PCI coal tonnage for delivery over the
next three months as Australian shippers are said to be sold out.
The northern winter has affected coal operations in the usual
regions. Heavier than normal snowfalls in western Canada have
been reported in the past month or so, but it appears that coal
railings and port loadings have not been disrupted significantly by
this. A strike by Canadian National Railways was reported in
late 2009, however, and this did have some impact but was
resolved after four days.
As one of the major growth markets, India has seen plenty of
activity recently, and this is forecast to continue in 2010. Steel
Authority of India Limited has been seeking 500kt of hard coking
coal for delivery during February to July 2010. Vedanta
Resources has issued a tender seeking 750ktpa of thermal coal
for three years starting in January 2010. The tender is
understood to have been open to South African and Indonesian
producers only, with traders excluded from participating. Tamil
Nadu Newsprint & Paper received an offer of Indonesian coal
from Coal & Oil following its tender seeking 250kt, at an
unconfirmed price of US$58.63/t FOB adjusted to 6,700kcal/kg
GAD. Delivery is required during January to May. Three other
traders offered coal at higher prices.
Due largely to demand from India, and now other parts of
Asia, the South African market has been busy although total
exports in 2009 were flat. It appears that the new expansion of
Richards Bay Coal Terminal will result in substantial excess
capacity for a while. At the time of writing, the Richards Bay
spot market has been softening, ending a week with shippers
asking around US$85.00/t FOB basis 6,000 kcal/kg NAR (net as
received). Buyers, mainly from India are rumoured to be seeking
tonnage at around US$82.50/t FOB same basis. This compares
with a Panamax cargo of coal reported sold earlier for loading in
March at a price of US$87.50/t FOB basis 6,000 kcal/kg NAR. A
Panamax cargo of coal was sold earlier in January, however, for
US$90.00/t FOB basis 6,000 kcal/kg NAR for delivery in March.
Another Panamax cargo was sold for US$94.00/t FOB same
basis and for loading in March.
Indonesian shippers have been enjoying regular trade in the
past few months and recently there have been reports of a
contract settlement for thermal coal supply to Japan during
CY2010 at a price of about US$88.00/t FOB basis 6,700 kcal/kg
GAD. This suggests a premium of some US$3.00/t FOB above
the Australians for similar deals in Japan, with the Indonesians
benefitting from their freight advantage once again. Meanwhile,
two 70kt cargoes of coal have been reported sold to China’s
general industry market through a trader at lower prices. The
price is rumoured to be about US$65.50/t FOB adjusted to basis
6,700 kcal/kg GAD, and is believed to have been supplied by a
group of smaller operators in the Banjarmasin market.
Korean coal consumption has been steady, with plenty of
activity seen recently. Among the gencos, Kowepo was seeking
1.12mt of coal for delivery to the Taean power station. The
enquiry included 450kt of coal with specifications including 5,350
kcal/kg NAR (min) for delivery during April to June. A further
370kt of similar material is required for delivery in March and
April, with Indonesian suppliers understood to be excluded from
offering. A further 300kt is required for delivery during April to
June with specifications including 4,600 kcal/kg NAR. A trial
cargo is also requested from new suppliers for delivery during
April or May in a single Panamax vessel. Komipo has issued two
LT tenders seeking 500kt of higher CV coal, plus 560kt of lower
CV coal. Delivery is required during April 2010 to March 2013.
Komipo was also seeking 750kt of higher CV coal for delivery
during January to June. In the steel sector, Korean buyers are
reported to have purchased several cargoes of Australian semisoft
coking coal recently at prices around US$95.00/t FOB
Newcastle.
Elsewhere in Asia, Taiwan’s Formosa Plastics is reported to
have purchased up to 1.5mt of Australian coal from a number of
shippers for delivery during 2010. The prices are unconfirmed
but are rumoured to be in the low US$80s per tonne adjusted
to 6,700 kcal/kg GAD. Steel Authority of India Limited is
reported to have received one offer of 500kt of hard coking coal
from Seacrest. Delivery is required during February to July. The
material, believed to be Russian, was expected to be priced at
around US$160–180/t FOB at the time of writing.
Meanwhile in the Atlantic, buyers have been rather quiet
although some trade has come to light during late 2009 and
early 2010. In Portugal, EdP is rumoured to have been in the
market seeking supplies of coal for 2011 and 2012. The utility is
understood to have approached existing suppliers in Colombia
and the USA. Morocco’s ONE has issued a tender seeking 76kt
of coal for the Jerada power station . Delivery is required during
February to March. Jorf Lasfar is reported to have awarded its
recent tender seeking three Panamax cargoes of coal to Energy
Coal. Delivery is required during March, April, and May, and the
delivered price is understood to be about US$86.00/t adjusted
to 6,700 kcal/kg GAD. The United Kingdom’s largest coal-fired
power station, Drax, is reported to be planning to reduce coal
consumption by around 10% by the construction and use of
three new wood-fired units of 290MW each during the coming
four years. This could see a reduction in demand of around
3.5mt of coal, which is intended to help meet environmental
protection targets. In the Mediterranean, Turkey’s OVA Elektric
has been seeking 50kt of Russian thermal coal for prompt
delivery. Titan Group was also seeking 220kt of coal for delivery
during Q1 2010 and Q3 2010.
In South America, Brazil’s CSN is reported to have received
offers of metallurgical coke priced at US$450–-495/t CIF
following its recent tender seeking 2x45kt cargoes for delivery
in January and February. The tender is understood to have been
cancelled as these prices appear to be around US$100/t above
the target level. On the supply side, a Capesize cargo of
Colombian coal was sold for US$79.00/t FOB basis 6,000 kcal/kg
NAR. Loading is required in February, with delivery to
northwest Europe. Glencore is rumoured to have taken a
Panamax cargo of coal from Prodeco for a Chinese customer.
The cargo is understood to have been shipped through the
Panama Canal to Australia, where it was blended with Hunter
Valley product prior to delivery. With the expansion of the
Panama Canal under way, traders could be preparing for larger
contract shipments of Colombian coal to China in future, and
are experimenting with freight and blending options. Incidentally,
Glencore is expected to buy back Prodeco from Xstrata within
the next two months or so. Venezuelan producers are
rumoured to be looking to increase exports of PCI coal in 2010
after a lacklustre couple of years. Marketing staff are
understood to be seeking additional business
in Europe, despite the relatively slow
improvements in steel output in the region
compared to Asia. In Mexico, details of CFE’s
tender seeking 6.24mt of coal have emerged.
The utility requires 4.81mt of coal with CV
6,200 kcal/kg GAR (gross air dried), 1.17mt of
coal with CV 5,900 kcal/kg GAR, and 260kt of
coal with CV 6,300 kcal/kg GAR. Delivery is
required during 2010 to 2012.
Investment in the coal sector has resumed
following the credit crunch with a number of
infrastructure developments noted in 2009.
As the Phase V expansion at South Africa’s
Richards Bay nears operational status, the
coal terminal is reported to have exported
61.14mt of coal during 2009. This was slightly
lower than the tonnage recorded in 2008 of
61.7mt. Reports from the country suggest the Phase V expansion
could be fully operational by April 2010 when computer systems
are capable of managing the new facility of 91mtpa capacity. In
Mozambique, the rail line between the Moatize coal basin and
Beira port is expected to be completed shortly. Riversdale and
Vale plan to export substantial tonnage using this infrastructure
in the coming years.In Vietnam, construction of a new deep water port on the
coast of Binh Thuan province is likely to begin during the next
few months. The US$700m project is expected to provide
Phase 1 capacity of 1mtpa.
Port Waratah Coal Services has been loading coal at levels
above target as 2010 gets under way, and the vessel queue off
Newcastle has been reduced from over 60 ships to around 50.
Government approval has been obtained for the development of
the Wiggins Island Coal Export Terminal at Gladstone. The
US$3.7bn project could result in an expansion of export
capacity at Gladstone to 150mtpa, and construction is expected
to commence in mid-2010. The Queensland government is
reported to be planning to offer Abbot Point and Brisbane ports
on a leasehold basis rather than the previous plan to sell them
freehold. Up to 60% of Queensland Rail’s coal haulage business
is expected to be offered for sale to the private sector.
During the winter freeze, almost 100 Russian coal trains were
reported to be waiting to proceed to port due to congestion on
the lines to the Pacific coast. All coal terminals are understood
to be affected, with limited railing of new cargoes possible.
Mechel is understood to be planning to invest up to US$1.2bn in
the Elga coal project in the Sakha Republic which contains 2bnt
of coking and thermal coal. Initial production is expected to
start in the second half of 2010, at a rate of 100-200ktpa and
ramping up quickly to 1mtpa during 2011. On the other side of
the Pacific, reports indicate that the capacity expansion to
29mtpa at Westshore Terminals will be completed in January.
Throughput for 2009 is forecast to be down year on year to
around 20mt compared to 21.2mt in 2008. Further south, MPX
Energia has gained approval for the construction of a new port
at Copiago in Chile. Coal could be imported through the facility
for the proposed UTE Castilla power station.
As was predicted a year ago, it is clear that the coal industry
has been weathering the storm and is emerging relatively
unscathed following the credit crisis and recession. This year
then, is expected to see improvements in many areas, although
some remain more fragile. All eyes have been on China for
some years now, but India is another major factor for the
international coal industry to watch in 2010.
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. A quarterly in-depth analysis, Global Coal
Market Quarterly, is produced in association with Global Insight.