Sunday, June 11, 2023
HomeDry CargoSpot Australian thermal coal has surged, but contract price is key

Subscribe

To our FREE newsletter
Get all the latest maritime news delivered straight to your inbox.

Spot Australian thermal coal has surged, but contract price is key

The spot price of Australian thermal coal is higher than that of coking coal, an unprecedented situation that highlights just how the global market for the polluting fuel has been upended by Russia’s invasion of Ukraine.

But while moves in the various spot prices tend to gather media headlines, it’s worth noting that they cover only a tiny volume of the whole seaborne market for thermal coal, a fuel for power stations.

What are far more significant are annual contract prices agreed between Australian miners and Japanese utilities in an opaque process that sets the cost of thermal coal for much of Asia.

In effect, the spot price is the price of last resort, insofar as it is paid by only those buyers desperate to secure supplies at any cost.

The bulk of exports of thermal coal from Australia, the fuel’s second-biggest shipper, behind Indonesia, are priced against annual contracts agreed between miners and Japanese utilities, which typically run from the start of the Japanese fiscal year on April 1.

The annual contract for Australian thermal coal that is most watched is the one between miner Glencore and Japan’s Tohoku Electric Power.

The two companies don’t disclose details of the talks or the outcome, but the settlement price generally leaks out and is followed by much of the market for other deals.

So far this year it appears no agreement has been reached between Glencore and Tohoku, with the parties said by market watchers to be about $100 a tonne apart on what Glencore wants and Tohoku is prepared to pay.

Last year the contract was agreed at just under $110 a tonne, according to reports at the time, which was up from $68.75 for the 2020-21 fiscal year.

This year it’s believed that Glencore initially wanted as much as $400 a tonne, while Tohoku was aiming for closer to $150, and negotiations so far have narrowed the gap but hardly closed it.

Assuming an agreement is eventually struck, the new price will certainly be a substantial hike from that of 2021-22, meaning power prices are likely to rise in Japan – and also in South Korea and Taiwan, which also use Australian thermal coal.

However, it’s also likely that the price agreed will be some way short of current sky-high spot prices.

SPOT PRICES SURGE

There are several benchmarks for spot Australian thermal coal, with the main physical price being that assessed by globalCOAL.

Thermal coal at Australia’s Newcastle port was assessed at $415.75 a tonne on Monday by globalCOAL, up 4.56% on the previous day.

However, globalCOAL also reported that there had been no physical trades so far this week, and last week saw only one cargo of 25,000 tonnes change hands on the company’s platform.

Newcastle coal futures traded on ICE ended at $392.45 a tonne on Monday, down from $397 on June 24.

Monday’s futures price was 10.8% below the record high of $440 reached on March 3, which came in the wake of Russia’s Feb. 24 invasion of Ukraine. The war raised concerns about the future of shipments from Russia, the world’s fourth-largest coal exporter.

The Monday price also means the ICE thermal coal contract is trading above Australian coking coal contracts in Singapore, which closed at $373.50 a tonne on Monday.

From the time Singapore Exchange coking coal futures were launched in 2014, they traded at a premium to Newcastle ICE thermal coal contracts – until June 1 this year, when they moved to a discount.

Thermal coal gained 243% in the 12 months to June 1, outpacing a 155% rise in coking coal contracts.

Spot Australian Newcastle coal is also trading at about eight times the price of mid-2020, when prices had slumped amid the economic fallout from the initial outbreaks of the COVID-19 pandemic.

The price has reached its current elevated levels on the back of strong demand from Europe, which is turning to seaborne coal from South Africa and even as far away as Australia as it halts imports from Russia.

Power shortages in India and Japan, the world’s second- and third-biggest coal importers, respectively, have also boosted demand and prices.
While there will be some deals done using the globalCOAL physical or ICE futures prices as a reference, this will be a small number compared to the cargoes priced against the annual contracts.

Source: Reuters

Related Posts

Video

Finance & Economy
Shipping News
Ports

Trafigura publishes 2023 interim results showing a strong performance

Trafigura, a market leader in the global commodities industry, released its 2023 Interim Report today for the six-month period ended 31 March 2023. The results...

Globus Q1 results hit by weak dry bulk market

Globus Maritime Limited, a dry bulk shipping company, reported its unaudited consolidated operating and financial results for the quarter ended March 31, 2023. Revenue $8.6 million...

BW LPG appoints new CFO

BW LPG announced that it has appointed Ms Samantha Xu as Chief Financial Officer (CFO), effective 1 September 2023. Ms Xu has over 20 years...

Frontline Posts Highest First Quarter Results Since 2008

Frontline plc reported unaudited results for the three months ended March 31, 2023: Highlights Highest first quarter profit since 2008 of $199.6 million, or $0.90 per...

Diana Shipping posts slightly lower Q1 profit; takes out $123m in loans

Diana Shipping reported net income of $22.7 million and net income attributed to common stockholders of $21.3 million for the first quarter of 2023....

Celestyal Participates In Promotion Of The Tourist Destination Of Central Macedonia

Celestyal, the award-winning, number one choice for travellers to the Greek Islands and the...

Capesize, panamax gains drive Baltic index higher

The Baltic Exchange’s main sea freight index rose for a fourth straight session on...

Baltic rises to over 3-month peak on firm demand for larger vessels

The Baltic Exchange’s main sea freight index rose on Wednesday to scale its highest...

Baltic index logs best day in nearly 3 months

The Baltic Exchange’s main sea freight index posted its biggest single-day gain since mid-March...

Taiwan Shipping Firms Set to Hand Out Bumper Bonuses Again

Taiwanese shipping companies are handing out bumper mid-year bonuses despite a slump in global...

Iraklio port tender set for another delay

The opening of the binding financial offers for 67% of Iraklio Port Authority had been scheduled for Thursday, but this is no longer expected...

APM Terminals extends concession of Kalundborg container terminal

APM Terminals has reached an agreement with the Port of Kalundborg to extend the concession of Kalundborg container terminal by 10 years to 2033. In...

US West Coast port workers shut terminals in showdown over pay

The employers of more than 22,000 dock workers at U.S. West Coast seaports on Friday said the union representing those laborers “is staging concerted...

DP World Completes Terminal Expansion Project Vancouver Port

DP World has completed the AED954 million ($259.78 million) Centerm expansion project, increasing container throughput at the Port of Vancouver by 60 percent. The terminal...

DP World completes AED 954 million Vancouver port expansion

DP World and the Vancouver Fraser Port Authority have celebrated two historic events – the completion of the Centerm Expansion Project at DP World...