Spot coking coal fluctuates on higher freight;no clear quake effect

Singapore (Platts)--14Mar2011/840 am EDT/1240 GMT

Seaborne Australian coking coal prices edged slightly lower Monday, mostly because of increased freight rates, in spite of tight supply and the strong psychological effect of the recent settlements at $330/mt FOB Australia.

No major impact from Japan's earthquake was immediately observable.

Platts Premium Low Vol Vol and Peak Downs Region both fell by $1 on an FOB Australia basis to $333/mt and $327/mt. HCC 64 Mid Vol was unchanged at $304/mt FOB. Higher freight, mostly due to higher bunker rates, resulted in increased CFR China and India prices, however.

Indicative bids and offers remain far apart. Sellers had little motivation to drop offers below $340/mt FOB given how rare premium hard coking coals are in the seaborne market, while buyers were struggling to accept numbers above $310-320/mt FOB, in part because they wanted to wait for BHP Billiton to settle its next term contracts before deciding.

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"It's unfortunate, but the benchmark is now set, and I doubt any suppliers will be offering [premium HCC] below $330/mt FOB," an Indian end-user commented.

In any event, miners, traders and buyers all agreed on the scarcity of spot tonnage available. "I would love to have spot coal available as the prices are so high, but I just don't have any," one Brisbane mining source said.

The latest market tightness is being compounded by sustained rain over the weekend Queensland. "Some main roads and highways are cut, and we've seen flash flooding," one mining source said Monday.

In the face of resilient coking coal and comparatively weak coke prices, Indian coke producers were considering scaling back production or shutting their facilities altogether.

The most likely spot buyers have typically been in India over the past few weeks, but this could be changing as both a trader and a mining company reported that North Asian mills have expressed some interest in buying spot tonnage for Q2.

US offers were heard broadly between $235-275/mt FOB depending whether they were blends or straight. Traders said that because of the lack of stockyard capacity at ports, they were typically unable to fill a whole vessel with a single coal.

Elsewhere, there was additional clarity around the index-linked transaction made into China last week. The late-March cargo is of BHP Billiton-Mitsubishi Alliance's Saraji brand. It will be priced at the average price of Platts HCC Peak Down Region CFR China during the month of March, minus $1/mt for quality adjustment. Platts calculates that taking into account CSR, VM, moisture, ash and sulfur, Saraji's quality discount to Peak Downs should be $2.5/mt based on the current spot price of $333/mt FOB Australia.

MARKET STILL ASSESSING JAPAN QUAKE IMPACT

The market was scrambling to assess the ramifications of the earthquake on steel production and coking coal shipments, but as the event was so recent, views still diverged.

"In a more liquid market [than coking coal], we would have seen an immediate downtrend," an Australian analyst said, citing demand lost from idled facilities. "But as it stands, I don't think there will be much of an impact for the met coal market." Others were more bearish, including a miner who said he still expected some of the Japanese customers to declare force majeure on coking coal purchases.

One clear impact will be the possible delay in both metallurgical and thermal coal contract negotiations, both of which were ongoing when the earthquake struck. JFE Steel, for example, has decided to cancel all meetings with coal suppliers for the next week, a source said.

Macquarie Commodities Research estimated Friday that coastal inventories of 1 million mt of metallurgical coal may have to be deemed unusable as a result of the tsunami.

In terms of steel output, the limiting factor for many producers in Eastern Japan will be the planned power outages, a Tokyo trader said. Japan's Tokyo Electric Power Company said Monday it has begun implementation of planned power cuts in parts of the areas it supplies from 5:00 pm (0800 GMT ),to cope with an expected spike in power usage in the evening.

The trader said the exception was Sumitomo Metals' Kashima plant in Ibaraki prefecture, which would be likely to have reduced production throughout Q2 2011. The mill has sustained significant damage, including at its blast furnaces, coke oven, gas holders and port facilities.

In terms of steel demand, one Singapore trader forecast that until June, Japan would likely export excess capacity built up because of lower demand from power-short OEMs. From June onwards, he saw this trend reversing, with South Korea, Taiwan and China selling into Japan to make up for a shortage in flat steel.

--Julien Hall, julien_hall@platts.com