Newcastle coal slumps 9% on week to 2-year low

Australian Newcastle coal

The Pacific basin’s benchmark coal price has plunged to a two-year low amid weakening coal indices around the world and the conclusion of price negotiations between Australian producer Glencore and its main Japanese customer.

Global Coal’s Newcastle index was down USD 8.70 on the week at USD 81.51/t on Thursday as it approached lows last seen in the summer of 2017. The assessment for high grade 6,000 kcal/kg Australian thermal coal deliveries to Asia is now down roughly 19% since the start of the year.

“The Pacific has been trading at a large premium to other basins for some time, yet globally fundamentals have been weak,” said James Stevenson, senior director of global coal for IHS Markit in Melbourne.

Impetus for the plunge might have come through the successful conclusion of this year’s price negotiations between Glencore and Japanese utility Tohoku, he added, highlighting the closely watched signal for the region.

The two companies last week reportedly settled on a price of USD 94.75/t for coal delivery through to March 2020, 14% below last year’s agreement.

“Once the [deal] was done, the [Newcastle] price was freer to come off,” said Stevenson. “There hasn’t been a huge change in the fundamentals.”

More US and Russian coal making its way into the Pacific, relatively weak demand among key Australian customers Japan and Korea and falling coal prices in other parts of the world were part of a soft pricing environment likely to last “for a couple more quarters”, he added.

Global pressure

Global Coal’s Newcastle index hit its highest premium against European coal in at least six years last month, touching almost USD 29/t in early March. The spread with South Africa’s Richard’s bay reached USD 21/t.

Both spreads remain towards the upper end of this year’s range after the DES-ARA index fell 17% on the week to below USD 55/t and Richards Bay fell 6% to just over USD 65/t.

A “move through contracting periods” with the start of the new quarter in a part of the year with lower seasonal coal demand was also at least partly responsible for the steep change in prices, said ANZ bank analyst Daniel Hynes.

The declines contrast with expectations at Swiss investment bank UBS of a rally back to USD 95/t this quarter. It highlighted buoyant demand and relatively tight supply for high quality varieties of coal in a report last week.

Indeed, Australia’s first-quarter coal exports out of Newcastle rose 5% year on year, port authorities revealed this week. Yet the data also showed Japan – Australia’s most important thermal coal customer – saw its volumes fall 4 percentage points to 51% of the total.

China spread widens

Coal prices on China’s Zhengzhou exchange were up 3% on the week at CNY 610.80/t (USD 91.02/t) as they returned to some of their strongest levels in a month.

Analysts attributed the divergence with Australian coal to Beijing’s attempts to manage prices and volumes. Nevertheless, China expanded its share of Newcastle coal volumes in the first quarter, despite reports of extended customs delays.

“Newcastle sales are generally FOB [free on board, not including shipping] so the purchasers bear the risk of customs delays rather than the producers,” said Lloyd Hain at AME Group.

“There must still be purchasers willing to take the gamble on procuring.”

Source: Montel



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