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Follow on Google News | Thermal Coal Market Volatility Looks Set to ContinueGiven the current volatility in thermal coal pricing, Australian coal producers are wary of selling spot coal much further out than three months into the future. Energy Publishing’s Marian Hookham analyses the current market conditions.
While the current spot market is trading at around $82.00/t FOB for Newcastle coal for deliveries now, two Newcastle spec trades were done this week for February 2013 at $87.50 and $87.35 on GC. Usually, a forward curve in contango implies the expectation of a supply disruption so buyers are prepared to pay more today to secure future supply. No such disruptions are looming and the contango is clearly due to other factors. Some sources contend that the influence of “countless Chinese defaults on cargoes” along with credit risk have meant producers are nervous of pricing coal further out than three months. “One reason Australian coal producers don’t want to settle at these prices is because they are living in hope that the price will go up,” said a market analyst. This move to shorter-term pricing can create an artificial sense of supply tightness, despite supply being, in reality, plentiful. In a recent market report globalCOAL noted “the usual rush of tonnes to market on gC Newc before year end hasn't eventuated, and most producers are also yet to finalise plans for 2013 which may explain the slight tick up in prices.” Certainly, as annual thermal coal contract negotiations loom for the April 1 start of the Japanese fiscal year, coal producers will be looking for a number closer to $100/t for the year in order to lock down production schedules. Any price much below that level will see more tonnes being cut as producers simply cannot keep producing coal below cost. Analysts also note a significant disconnect between physical deals and Swaps. “There’s a about a US$6-7 difference between the paper front month and the paper back month,” a source said. “You need a situation of over-supply for the physical and paper markets to correct. Though the situation can be a bonus for some producers if they are willing to sell forward on paper.” Certainly, few producers are willing to close prices at current levels that are uncomfortably close to their costs, a point emphasised by the fact Korean gencos have struggled to lock down tenders at current pricing levels. Another issue potentially shaping uncertainty is the probability some Hunter Valley coal producers are blending down their Newcastle spec coals which means less Newcastle spec coals available to trade. Meanwhile, trade in lower quality 5500 NAR higher ash coal to China has continued fairly strongly with one 75kt trade going through on globalCOAL to South China at $84 CFR for end November delivery. This article first appeared in Energy Publishing Asia Pacific’s Australian Coal Report. Providing the latest news and insight into the Australian Thermal and Coking Coal markets, the Australian Coal Report provides all the information required to keep up to date with developments in this important coal production centre. The report includes monthly export statistics, pricing intelligence and key index markers. For a complimentary copy of the report, contact Energy Publishing at marketing@energypublishing.biz or visit http://www.coalportal.com and sign up for a free trial. End
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