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First coal fixture from US to Asia as prices set to rocket 17-Jan-2011

Coking coal prices could reach $400-$500 per tonne as severe flooding forces closure of many Australian mines.

The first coal voyage fixture from the US east coast for Asia was reported today, amid claims that coking coal prices might be pushed as high as $400-$500 per tonne on global shortages after the Australian floods. Charterers paid freight of $41 per tonne for a 75,000-tonne coal shipment from Newport News to the east coast of India, the Baltic Exchange reported on Monday.

About 40% of the world’s supply of coking coal, used in steel production, comes from Australian mines, which have been closed due to severe flooding. The Australian prime coking coal price jumped 5.7% last week, to $280 per tonne from $265 the week before, according to research firm IHS McCloskey.

Wood Mackenzie coal analyst Jim Truman said that “it is reasonable to assume” that hard coking coal prices could reach between $400 and $500, without giving a time frame. He said that he had heard of one spot cargo of coking coal sold to a Japanese customer priced at $350 per tonne. McCloskey estimated that the spot price could reach $300 per tonne this year.

Wood Mackenzie projected that if Australia’s coal mine production was closed for one month, 14m tonnes of exports would be affected, including 7m tonnes of hard coking coal and 2m tonnes of soft and semi-hard coking coal. Any global shortage and higher prices might see Chinese steel producers and power suppliers shun imports and instead turn to domestic coal sources.

Amrita Sen, researcher at Barclays Capital Research, said increases in local coal production would depend on Chinese macro-economic decisions related to the nation’s steel industry. “If the underlying demand for steel is there in China and the price of imports is prohibitively high, then it is a no-brainer that it will be profitable for Chinese to start producing more coking coal,” said Ms Sen.

She added that the government signalled last year that it wanted to cap the domestic coal contact price to curb inflation. “It is too early to tell how underlying demand will affect local Chinese production,” Ms Sen said. Brokers said Asian steel mills have filled inventory gaps by sourcing coking coal from the US east coast and Canada, a trend that has lent some support for panamax rates in the last two weeks, during a period when capesize rates have collapsed.

One Hong Kong broker said that he also expected to see cargoes of coking coal from Colombia. “If this happens, then this will have a strong positive effect on fronthaul rates for capesize vessels,” he said. A similar spike emerged in April 2009, when mills sourced coking coal from Colombia for a brief period based on cheap coal and freight prices.

Ms Sen that Colombia had also experienced weather-related disruptions to its coal exports, that could last until March. While not widely publicised, the effect had been severe and would cause production to miss the government’s last year’s target by 5m-7m tonnes, she said.
Coal supply has been disrupted as well at Richard’s Bay in South Africa, where exports are primarily thermal coal.

Brokers reported several panamax fixtures from Richards Bay in South Africa to South Korea by STX Pan Ocean and others, for loading in early February. One Singapore broker said that he expected inquiries for panamax coal transport from Richards Bay to China to increase because “Chinese mills sometimes mix thermal coal with coking coal in their production process”.

But he added that disruption from rains were creating shortages that could diminish this prospect. “There’s almost nowhere in the world that isn’t having a problem exporting coal right now,” Ms Sen said.

Source: Lloyds list, 17 January 2011


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