Newcastle sellers place Japan's coal cargoes into India, China

Mar25, 2011

Perth (Platts)- Chinese and Indian coal buyers were carefully weighing up offers for Australian thermal coal this week as sellers were forced to look beyond their regular customers in Japan for new markets to accommodate spare export cargoes from Newcastle port.

Market participants drew attention to an apparent disparity between the prices for spot cargoes of Newcastle thermal coal in the over-the-counter physical market, and prices for Newcastle thermal coal cargoes being quietly offered to Indian and Chinese coal buyers.

Spot Newcastle cargoes were heard offered in the Indian market at prices around the $115/mt FOB level, while in the over-the-counter market bids were reported in the low-to-mid $120s/mt FOB Newcastle.

There weren't any trades for Newcastle thermal coal on trading platform globalCOAL in the period March 21 to the close of the Asian trading window on March 25, the last Newcastle trade having occurred for 135,000 mt for April delivery at $120.50/mt FOB on globalCOAL March 18.

"Newcastle cargoes are being offered to buyers in India," one market source confirmed.

A second market source said Newcastle thermal coal for delivery in the next 90 days was being offered in Capesize cargoes to Indian buyers in order to make its shipment cost from Australia attractive.

Panamax vessel freight from eastern Australia to India was trading around $21/mt last week, and rates for Capesize vessel freight for the same voyage were likely to be significantly lower.

"There are a lot more varieties of coal in the Indian market, including Australian coal and Russian coal," a third market source observed wryly.

Potential buyers in China for spot cargoes of Newcastle thermal coal were said to have been offered price discounts of at least $10/mt to current spot market prices on distressed cargoes of 6,000 kcal/kg NAR Newcastle thermal coal.

In the case of both Chinese and Indian buyers, they were said by market sources to be holding out for attractive price offers for Newcastle thermal coal cargoes.

"Buyers are biding their time to see if they can get a good deal," said the first market source.

The second market source struck a similar chord, saying: "People are waiting for a correction in the market." CANCELED SHIPMENTS

Two of Japan's largest power utilities, Tokyo Electric and Tohoku Electric, declared force majeure on their deliveries of thermal coal from Newcastle port in eastern Australia shortly after the country was tragically struck by an earthquake and tsunami on March 11.

These Japanese customers are unable to accept imported cargoes of Newcastle thermal coal because of damage to their unloading ports.

"A few vessels were declared force majeure by Japanese utility companies around loading ports, and fixed to other business in the market. The number should be two to three vessels maximum and happened last week," said a fourth market source.

"Clearly the two largest JPUs cannot take any more coal. Tokyo and Tohoku's total coal consumption is 60 million metric tons [per year], and quite a large proportion of this is likely to be canceled," said a fifth market source.

"At the moment, they are simply canceling shipments because they cannot physically take any more coal as their port facilities are damaged," he stated.

Japan's imports of thermal coal were running at 125 million mt/year prior to the earthquake and some market commentators believe Japan's overall demand for thermal coal could drop by 12 million mt in 2011, or 10%.

Some recent Newcastle thermal coal shipments destined for Tokyo or Tohoku have been redirected to other Japanese power utilities such as Hokuriku and J-Power, or to Japanese industrial end-users.

Other cargoes were said to have been offered for resale to customers in other parts of Asia.

"Some of the cargoes will be diverted to China, South Korea or Taiwan. I think that at these prices it's hard to do [Newcastle] cargoes to China, but Chinese domestic coal prices have been creeping up," said a sixth market source.

Some market sources expect the disruption from the Japanese earthquake and tsunami and their after effects to linger for possibly many months if not years. "More than half of their coal plants cannot be re-commissioned and we don't know for how long this will last, it could be six months or a year," said the fifth market source referring to Tokyo and Tohoku. (The Platts)