FOB Prices Came Under Intense Pressure Thursday From a Firmer Freight Market

FOB prices for Australian 5,500 kcal/kg and 6,000 kcal/kg net-as-received spot cargoes came under intense pressure Thursday from a firmer freight market, lower Asian physical demand and weaker prices for domestic coal in China, market sources said. 

The spot price for cargoes of 5,500 kcal/kg NAR thermal coal for delivery to south China in the next 15-60 day period were assessed by Platts at $85.10/mt CFR, and was up 10 cents on day, while domestic thermal coal for loading at China's Qinhuangdao port in the next 7-45 day period was assessed at Yuan 525/mt ($83.60/mt), and was Yuan 3 lower day-on-day. 

"The news out of China has been very bearish this past week. Korea is not buying anything until a correction happens, and neither is China buying," said one trader. 

Asian buyers have lowered their bids for April-loading cargoes of high ash thermal coal traded at Newcastle port to $74/mt FOB, and Newcastle sellers have started to discount their offer prices which were 50 cents lower on day at $75/mt FOB for 5,500 kcal/kg NAR and maximum 23% ash spot cargoes. 

Bids were recorded for April-loading high ash cargoes at $74.25/mt FOB Newcastle to offers $1 lower on day at $75/mt, as heard through broker Marex Specton, Thursday. 

A lack of volatility in Asian seaborne prices and plentiful supply has reduced any urgency in buyers and sellers to rush on to the spot market and engage in deals, said another trader. 

Rains in Indonesia's Kalimantan province, and in eastern Australia have provided the only impetus for deal-making by traders with short positions to cover, he said. 

Capesize vessel freight was quoted in the market at $11/mt for the voyage from Newcastle, Australia to south China, and with CFR China prices effectively capped by domestic prices the burden of higher freight costs has fallen on to FOB Australia prices, said traders. 

Delivered south China prices for Australian maximum 23% ash cargoes have stabilized, but bids continue to lag sellers' offer prices by several dollars. "We will consider booking one or two parcels of 5,500 kcal/kg NAR Australian coal at $84-85/mt CFR for April and May delivery," a Shandong-based trader said. 

Few offers for other origins of 5,500 kcal/kg NAR thermal coal were heard in Thursday's market after cargoes of South African thermal coal at this grade were offered at $86-87/mt CFR China, Wednesday. 

Australian 6,000 kcal/kg NAR thermal coal prices also buckled Thursday, as a 25,000 mt spot parcel traded late in the Asian trading window at $91.75/mt FOB Newcastle, and $1.45 lower than an April parcel that went through globalCOAL Wednesday at $93.20/mt. 

Earlier in Thursday's screen traded market, April-loading 25,000 mt parcels of Newcastle 6,000 kcal/kg NAR coal were bid at $92.25/mt FOB to offers at $92.75/mt, and for May cargoes the bid-offer spread was $90.25-90.75/mt. 

Some Panamax cargoes of 6,000 kcal/kg NAR Australian thermal coal were heard offered in the Chinese market at $92-93/mt FOB for April and May delivery, a trader in Beijing said, but he expressed disinterest. Platts assessed the price of Newcastle thermal coal with a calorific value of 5,500 kcal/kg NAR, typical ash of 20%, normalized from 17-23% and for loading in the next 7-45 days at $76/mt FOB, and the assessment was 25 cents lower than Wednesday's level. 

The ash differential in Newcastle 5,500 kcal/kg NAR thermal coal on a 1% per mt basis was assessed to be 1 cent lower at 63 cents, Thursday. DOMESTIC COAL TRADES 

Some trading activity has occurred in China's domestic market, with spot deals heard for some cargoes of 5,500 kcal/kg NAR coal agreed at Yuan 521/mt, or $83/mt FOB Qinhuangdao port recently, and Yuan 5/mt lower than in February, said a Guangdong-based trader. 

And, a 20,000-30,000mt cargo of 5,100 kcal/kg NAR domestic coal was reported to have traded at Yuan 496/mt, or $79/mt CFR Nanjing-port. In the wider market, traders pegged domestic 5,500 kcal/kg NAR prices at Qinhuangdao port at Yuan 525/mt. 

Traders in China pointed to a mix of bearish and bullish factors ahead for the domestic thermal coal market. 

Some traders in China said they expected domestic prices to tick up from April as power station demand for coal returns to normal after the hiatus of China's Lunar New Year festival in mid-February. 

"We expect a rise of $1-2/mt in buying interest from Chinese end users for 5,500 kcal/kg NAR or higher calorific value coal in April," a Beijing-based trader said. 

A Shandong-based trader, however, warned that the increasing substitution of natural gas for coal in China's energy generation mix could crimp the country's demand for imported thermal coal cargoes. 

"Many factories have opted to use natural gas instead of coal, and major Chinese oil companies have signed supply deals for Qatari, Indonesian and Mexican natural gas," he said.