“Several traders are closing off their short positions for Q1 and January is the nearest month,” the trader said.
“Producers have also been selling their coal before the end of the year which means there is likely to be less coal available in December and January. It will be very difficult to get any tonnage for December,” the trader said.
Producers negotiating with Japanese utilities for year-long contracts for deliveries beginning January 1 are also putting upward pressure on spot prices and they have their minds on the start of Japanese fiscal year contract negotiations which will start in February, the trader said.
Last week, February deliveries of Newcastle coal were hovering around the $90/t mark.
“The market is not likely to slip below $90, or at least the high $80s, in the foreseeable future,” the trader said.
A derailment by a loaded Pacific National coal train in the NSW Gunnedah Basin recently has also provide support for the spot price.
“A large part of the reason for Newcastle prices rallying recently is the train derailment which looks to be serious and I suspect will continue to cause issues for some time – perhaps all of December,” a Sydney-based trader said.
Meanwhile, Chinese purchases of Newcastle high ash 5,500kcal/kg coal have been stymied by the higher prices Korean gencos pay for 5,700kcal/kg Newcastle coal through tenders.
“The Chinese haven’t moved their target price for a long time – they’re still sitting in the low $70s on a 5,500 NAR basis,” the trader said.
“The Koreans have continued to buy 5,700 NAR coal through their tender processes and prices have increased in these tenders from around $82/t on 6,080kcal/basis to $85/t, so there’s been a feeling that the Aussie producers have dumped what they needed to some months ago and there’s less of a supply overhang.”
He said there has been “little noise”, if any, about production cut backs by NSW producers.
Further supply reductions of Newcastle coal have resulted from the four-day closure of the Hunter Valley rail network last month for capacity expansion and maintenance. Port of Newcastle terminal operator Port Waratah Coal Services is still recovering from the outage with an estimated loss of about 750kt of throughput.
The Singapore trader concurred Korean gencos were paying a far higher price for off-spec Newcastle than Chinese traders are willing to pay.
“Chinese bids are weak compared to what the Koreans are prepared to pay,” the trader said.
“Chinese buyers are offering $71-72/t FOB for 5,500kcal/kg coal while the Koreans are paying in the mid-$80s on a 6,000kcal/kg basis for 5,700kcal/kg coal.
“That’s about $7 more on a calorific value basis.”
The Korean gencos were likely to continue buying 5,700kcal/kg throughout the first quarter of 2013 as prices were unlikely to be this low again for some time, the trader said.
With the Chinese domestic prices for coal continuing to fall and ports and power plants well stocked for the coming winter period, Chinese traders are not likely to move their target price for the high ash 5,500kcal/kg Newcastle product. As at December 3, the benchmark price for 5,800kcal/kg coal at the northern China port of Qinhuangdao fell by RMB 5 ($0.80) week-on-week to RMB 675/t ($108.30/t) with the 5,500kcal/ kg domestic product also falling by RMB 5 w-o-w to RMB 630/t ($101.10/t).
In Australia, what is changing is the price spread between standard spec Newcastle coal and the high ash 5,500kcal/kg product, the Sydney trader said.
“Previously Newc prices had been falling towards a static 5,500 price and now the reverse is happening,” he said.
The Newcastle Export Index (previously the Barlow Jonker Index BJI), is an indicator of the spot price of thermal coal in the Asian market. It reflects the price at which a willing seller and a willing buyer are prepared to do business in the spot market for a prompt cargo of thermal coal loaded FOB vessel Port of Newcastle, NSW, Australia. Newcastle is one of the world's largest export coal loading facilities, and Newcastle coal is the reference coal in the Asian thermal coal market. The NEX is published weekly in Coalfax and in coalportal.com’