Sharp falls in Chinese coal futures takes wind out of market's sails

Perth/Singapore —Some heavy falls in Chinese futures prices for 5,500 kcal/kg NAR thermal coal in Friday's session have dampened expectations of a near-term recovery in spot prices for Chinese domestic and imported coal, market sources said.

Demand for physical cargoes of seaborne thermal coal in China has slowed to a trickle this week, on a mixture of Yuan currency weakness, high port and power plant stocks, as well as declining coal consumption at coastal power plants, market sources said.

In addition to these headwinds, only power companies or industrial end-users can land cargoes in China, as many traders and importers lack the official import quotas or other paperwork required to navigate seaborne cargoes past restrictions at Chinese ports, market sources said.

"Some people have tried to clear cargoes they can't sell by offering them to India and other markets," one market source said.

Several cargoes of Australian 5,500 kcal/kg NAR thermal coal have been fixed for markets further afield than China, such as in India, Northwest Europe, and Turkey, market sources said.

However, there was a problem with this strategy of diverting cargoes to other markets, in that some Australian cargoes carried destination restrictions that stated they could only be shipped to China.

Buying interest from Chinese buyers remained steady, and was hovering at around $62/mt FOB Newcastle for September-loading cargoes on Friday, one market source said.

Lower offer prices were heard for Australian 5,500 NAR thermal coal from some coal producers at $65/mt FOB Newcastle compared with $68/mt earlier in the week.

"They [coal producers] have moved down their offer prices," one market source said.

CFR CHINA TRADE
A trade was heard Friday for an end-September to early-October arrival Capesize cargo of Australian 5,500 kcal/kg NAR thermal coal at around $76/mt CFR South China, a market source said.

Capesize vessel freight on the coal trading route from Newcastle in eastern Australia to southern China remains buoyant at about $14/mt, a source said.

A Korean buyer has reportedly chartered a 130,000 mt Capesize ship from Newcastle port in H1 September to sail to Hadong in South Korea at $14.30/mt, freight market sources said.

DOMESTIC PRICES LOSE MOMENTUM
Qinhuangdao 5,500 NAR domestic thermal coal prices perked up mid-week to trade around Yuan 630/mt FOB, from Yuan 600/mt at the start of the week.

Traders attributed this price spike to bullish sentiment spilling over from Chinese thermal coal futures markets, although the futures market had erased some gains on Friday.

The liquid September, November, and January 2019 futures contracts settled lower in Asia trade at Yuan 621.60/mt, Yuan 616.20/mt and Yuan 602.20/mt, respectively, basis 5,500 kcal/kg NAR.

These settled prices represent day-on-day falls of Yuan 3.60/mt, Yuan 5/mt, and Yuan 12.20/mt, data from Zhengzhou Commodity Exchange showed.

MORE BEARISHNESS FOR INDO COAL
A Singapore-based trader expects a further correction in prices, as traders are finding it difficult to liquidate coal positions while China is marking time, and India is holding back.

Offers for August-loading Supramax shipments of 3,800 kcal/kg NAR Indonesian thermal coal were at $39-$39.50/mt FOB, while bids were at $38-$38.50/mt.

Another Singapore-based trader expected the market's bearish mood to continue over August. "The prices were too high, so they had to correct," he added.

A South India-based end-user received offers for an end-September loading Supramax shipment of 4,200 kcal/kg GAR Indonesian thermal coal with 0.6% sulfur at $38.50/mt FOB.

Buying expectations for this were around $36/mt FOB Kalimantan, he said.

"We are looking for end-September cargoes, and there are ample offers. But if Chinese demand returns the prices might start to move up," he added.

INDIA'S CHOICES
Meanwhile, various origins of thermal coal are moving into India, including from Mozambique and the US, the second Singapore-based trader said.

South African 5,500 kcal/kg GAR coal was offered at a discount of $21/mt to 6,000 kcal/kg NAR prices, while discounts for 4,800 kcal/kg NAR coal was at $11/mt, on 6,000 kcal/kg NAR coal.

He added that Mozambique coal is now being offered into India. Discounts for Mozambique 5,500 kcal/kg GAR coal are $23/mt, comparable to South African thermal coal, and for 4,800 kcal/kg NAR they are at $13/mt.