Hunter Valley producers have been maintaining production levels to minimise marginal costs. Producers’ take-or-pay contracts with rail and port providers could result in sunk costs of A$10-15/t if contracted volumes are not fully utilised - an additional FOB cost not faced by Chinese and Indonesian producers.
With the spot price of Newcastle coal holding steady just above US$90/t for the past month a new floor price may have been found that allows the majority of Hunter Valley producers to operate profitably at current levels.
The past week has seen more liquidity in the Newcastle spot market with globalCoal reporting two 25kt lots for November delivery being settled at US$92/t FOB and one 25kt lot traded at $91/t FOB for October delivery.
“Physicals are currently trading about US$1-2below the swap market price,” a Sydney-based trader said.
He said he doesn’t expect much movement in prices and had not heard of any reduction in output by Hunter Valley producers.
“Just the opposite, I think they will increase production to reduce their marginal costs,” he said.
It is a strategy that is being heard more frequently particularly from larger companies. The chairman and executive director of Yanzhou Coal Li Weimin said its Australian operations would not be reducing output, AAStocks Financial News reports. The recent merger of Yanzhou’s 78% owned Australian subsidiary Yancoal Australia with New South Wales thermal and semi-soft coking coal producer Gloucester Coal would provide the advantage of economies of scale to effectively reduce costs, he said.
Albeit about coking coal, on a similar theme, BHP Billiton CEO Marius Kloppers said the company plans to significantly ramp up production at its Queensland coking coal mines over the next three years to combat the current and forecast continuing low prices for metallurgical coal.
Throughput at Port Waratah Coal Services terminals continues at over 2Mt per week with no sign of slowing in the near term with a ship queue above 40 vessels and a healthy list of forward nominations. The only hiccup may occur in November when the Hunter Valley coal rail network is shut down for several days for routine maintenance which may result in the loss of some export volume.
A partial closure of the Daqin railway in October for two week may also have a similar effect to coal stocks at China’s benchmark port of Qinhuangdao which could see an increase in demand for imported coal. Although, China’s thermal coal imports increase in July from the previous month, the trader said this not likely to continue.
“China’s imports for the past three months have been historical volumes delayed from when traders bought up big in the fourth quarter of 2011 and the first quarter of 2012,” he said.
“You won’t see them in the seaborne market for coal in any meaningful way for the rest of the year.
“They are well over-committed and you could see a second round of non-performance of contracts even though they will try to meet their commitments.”
Dwindling demand from China will see one of Indonesia’s largest coal miners redirecting more of its export coal to India. PT Bukit Asam president director Milawarman told local media Antara he is optimistic the coal price would improve in the second half of the year with growing demand from India. Government-controlled PT Bukit Asam has a sales target of 16Mt this year of which about 35% will be exported and remaining 65% delivered to the Indonesia’s domestic market.
Coal trading in Indonesia has been quiet for the past week because of the Muslim holiday celebrating the end of Ramadan but there were still some inquiries for lower rank coal.
“We see interest from Indian buyers for 5,000kcal/kg and 3,800kcal/kg GAR material and some interest too from Chinese buyers of 4,200kcal/kg,”
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