Chinese End-Users Switched to Concluding Term Contract Deals

Chinese end-users have switched to concluding term contract deals and lessened their spot buying with the approach of China's Lunar New Year festivities in mid-February, as spot prices for south China stayed rangebound in Thursday's trading session in Asia at $85/mt CFR basis 5,500 kcal/kg NAR, said market sources.

A trader in China's northeastern Liaoning province was heard in the market to have booked 2 million mt of Newcastle 5,500 kcal/kg net-as-received thermal coal with ash of about 20% from a large Australian coal producer at a $7 discount to globalCOAL's index for Newcastle 6,000 kcal/kg NAR thermal coal.

Cargoes for the term deal are due to start arriving in south China ports later this month, and with the Newcastle index price currently at $93.35/mt FOB this week, a $7 discount works out to $79/mt FOB basis 5,500 kcal/kg NAR in the present market, which is about $4 above spot market prices.

Other term contract deals for Newcastle 5,500 kcal/kg NAR thermal coal were understood to have been concluded recently, but price details about these were sketchy, although some have been settled on a FOB fixed-price basis, said market sources.

Colder weather in China has led to increased coal burn and this has eaten into power plant stocks. According to a Fujian-based trader, coal stocks at one local power plant were currently about 300,000 mt and around one-month's consumption.

"Both coal miners and power plants are holding off on their procurement," said a Shanxi-based trader, who said negotiations to settle term contracts for domestic coal were expected to be settled in late February.

A cargo of Australian 5,500kcal/kg NAR for March delivery was heard offered to Chinese buyers at $76/mt FOB Thursday, a slight increase on levels earlier this week, according to a Tianjin-based trader.

He was not ready to buy cargoes for arrival in March.

"We are not sure about the price level after the China Lunar New Year festival. It's too risky to take coal that far ahead," he said.

"We can consider buying some 5,500kcal/kg NAR Australian coal if any cargoes are available for delivery in late January or February at $71-72/mt FOB," the trader added.

End-users in China are also cautious about committing to post-Lunar New Year shipments, said traders.

"I have got more enquiries from downstream consumers for February-March delivery cargoes, but their purchasing prices have remained low," a Fujian-based trader noted.

For 5,500 kcal/kg NAR Australian or South African thermal coal, purchase prices have been steady at Yuan 620-625/mt ex-quay, including 17% VAT. This translates to landed price of $84.50-85/mt CFR, excluding VAT.

A Guandong-based trader was heard to have recently booked a mini-Capesize cargo of 5,500 kcal/kg NAR Australian thermal coal at $72.50/mt FOB, or $83-84/mt on a CFR basis for February delivery, market sources said.

In the freight market, a vessel fixture was heard done this week for a mid-January laycan cargo of 130,000 mt from Newcastle port in Australia to the southern Chinese port of Zhanjiang at $10.75/mt.

Capesize vessel freight from Richards Bay in South Africa to south China for 5,500 kcal/kg NAR cargoes was quoted in the market at $11/mt Thursday, and FOB prices were at $75/mt.

In Thursday's over-the-counter market, bids for cargoes of high ash Newcastle thermal coal with an ash content of up to 23% were slightly higher compared with the previous day.

March-loading cargoes were bid at $75/mt FOB Newcastle to offers at $76.50/mt through globalCOAL, and bids for the same month were heard at $74.75/mt through Marex Spectron, and were about $1 higher than for the remainder of January and February-loading cargoes.

Platts assessed the FOB price of Newcastle 5,500 kcal/kg NAR thermal coal with typical ash of 20%, normalised from 17-23% and for loading in the next 7-45 days at $75.75/mt and up 25 cents on-day.