Australian thermal coal price recovery rests on colder Asian winter weather

Australian thermal coal prices may be due for a slight uptick after several months of decline, particularly for the Newcastle 5,500 kcal/kg NAR grade, but only a sustained spell of cold weather is likely to spark a solid recovery in market prices, sources said Wednesday.

For the 6,000 kcal/kg NAR grade of Newcastle thermal coal FOB prices have come down to $95/mt this week from $125/mt in mid-July, while prices for 5,500 kcal/kg NAR high-ash cargoes have slumped to $58/mt FOB from $82/mt over the same period, according to S&P Global Platts data.
"Prices have fallen some $15 in the last month or so, as the weight of fundamentals plays out, and as the Chinese import ban takes hold," a market source said.

He went on to add: "Since we've had such a big fall in prices it would not surprise to see a correction at some point. However, a sustained rally will likely only be driven by a colder-than-expected northern hemisphere winter which will start to erode the very large stockpiles in Europe and China."

The arrival of freezing winter temperatures would drive up consumption at Asian coal-fired power plants and diminish stockpiles, leading to utility buyers returning to the spot market for fresh cargoes, said sources.

In Wednesday's Asia trading session for Australian 5,500 kcal/kg NAR thermal coal, an offer was heard at $60/mt FOB Newcastle for a January Handymax shipment to buying interest $1-$2 below this.

Some indicative buying interest was heard for Australian 5,500 kcal/kg high-ash coal for December on a delivered-China basis at $68/mt CFR, but trading for China is lackluster because of its strict port controls on imports.

Freight fixtures were heard for two Capesize ships to load cargoes at Newcastle port in the second half of December for delivery to South Korea's ports of Boryeong and Youngheung at $11.10/mt and $10.55/mt, respectively, freight sources said.

JAPANESE DEMAND
Japan's demand for Newcastle 6,000 kcal/kg NAR thermal coal -- the main feedstock for the country's coal-fired power stations - had been dampened after a fire outbreak at one Japanese power utility plant following an earthquake in September.

"Demand was reasonably consistent until [Hokkaido] had their fire, which forced them to allocate their tons to other JPUs which had a knock-on effect of displacing those tons with Australian suppliers for delayed delivery," said one market source.

"This came at a time when supply was looking heavy already," he added, referring to the Newcastle 6,000 kcal/kg NAR thermal coal market.

The 700-MW number four unit of Hokkaido Electric's Tomato-Atsuma 1.65-GW plant was taken out of service after the September earthquake caused a fire, according to reports. The plant was brought fully back online by its operator in early October after repairs to No 4 unit and two other damaged units.

Hokkaido Electric uses 300,000-600,000 mt a month of imported thermal coal, mostly Australian, according to S&P Global Platts Analytics data.