Euro Coal-S.African price fall stirs Indian interest

Jun 17,2011

* Richards Bay discount to paper stays at $3-5/T
* Indian enquiries rise for S.African prompt cargoes
* Heavy rain seen tightening Australian supply-Citi
* July S.African cargoes trade at $116/T via brokers

LONDON, June 17 (Reuters) - Physical coal prices fell by around $1.00 a tonne on Friday, pulled down by weaker API4 swaps which were reacting to macroe news and almost universally weaker demand for South African prompt cargoes.

FOB Richards Bay prompt cargoes have been trading this week at as much as $5.00 a tonne below the API4 physical index -- in a more balanced market index-linked prices hover 50-75 cents a tonne either side of the index.

If the weekly published API4 index comes out at $116.00 a tonne for example, a $5.00 discount would equate to a fixed price of $111.00, a level at which Indian traders have said they would buy.

This, plus the drift lower in fixed prices from close to $120.00 to nearer $115.00 for July loading South African cargoes, has roused some fresh Indian buying interest, after a hiatus of several months.

"At $3-5 below index, there's been some more Indian interest, they're enquiring and getting a few things done," one European trader said.

Asian buyers outside of India - China, South Korea, Malaysia, Japan - have also chosen Australian, Indonesian and Russian coal in preference because of the cheaper delivered cost.

South African coal has been uncompetitive into the European market also for months, a situation which is unlikely to change unless there is a sharp price fall.

"With discounts of $5, South African has got to start pricing in competitively somewhere in the world soon," another European trader said.

Indian traders who import the majority of the country's 60 million tonnes of thermal coal shipments have steered clear of South African coal since last October when prices rose from $90 to over $100 a tonne.

Prices have hovered at around $120 a tonne since then largely due to the strength of coal swaps, themselves buoyed by strong oil values. But, during this time Indian buyers have kept shipping term contract volumes from Richards Bay but bought various other coal origins instead.

Indian traders said they would be looking to pay no more than $110.00 but would wait as long as it takes for prices to drop to $100 before buying fresh, substantial tonnages.

It has taken several months for India's avoidance of South African coal to have an impact on prices, traders and suppliers said.

AUSTRALIAN RAIN

The short-term outlook is not relentlessly grim, utilities and suppliers said. There are still potentially bullish factors which could halt a price slide.

China may yet import sizeable quantities of coal and heavy rains in Australia are hindering output and will slow exports, Citibank said in its Global Commodities Daily report.

Asian coal-users, particularly China, have mopped up large tonnages of Australian coal since the March quake and tsunami cut Japan's imports but this may not last much longer.

"There's not a lot of coal left for spot sales in Australia, whether it's so-called off-spec or standard grade," one Pacific coal producer said.


TRADES

Two July loading South African cargoes traded at $116.00, down $1.00.

An August loading South African cargo traded at $117.75, slightly lower than Thursday's levels.

PRICES

A July loading South African cargo was bid at $115.00 and offered at $117.00, down $1.00 on the bid.

An August loading South African cargo was bid at $116.00 and offered at $119.00, also down $1.00.

A September South African cargo was bid at $118.25 and offered at $120.25, down $1.25 on the bid.

A July delivery DES ARA cargo was bid at $117.75 and offered at $120.75, down nearly $2.00 on the bid.

A September DES cargo was bid at $121.75 and offered at $122.25, down 75 cents on the offer.

(Reporting by Jackie Cowhig, sourced Thomson Reuters)