Pulverized coal injection eyes foray into thermal coal market on price rout
August 4, 2015 -- By Edwin Yeo and Kenneth Foo in Singapore
The downtrend in pulverized coal injection prices over the last three months has opened up an opportunity for PCI to displace high calorific value thermal coal for use as coal-fired boiler feedstock.
But specification and technological limitations are seen as obstacles for thermal coal buyers to make a widespread switch, a Platts survey in the last week of July of over two dozen miners, traders and steelmakers showed.
Spot seaborne prices of the steelmaking raw material PCI have been hard hit by falling Chinese import demand and weak PCI and coke prices in the world's largest steel producer, with mid-tier PCI falling 30% so far this year to be assessed at $59.95/mt FOB Australia on July 30.
This outpaced the fall of 7% in FOB Newcastle 6,300 kcal/kg gross as received thermal coal prices over the same period to $59.85/mt.
Analysis continues below...
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The convergence between met and thermal coal prices was more pronounced from May 5, where spot and term met coal prices fell to levels at which PCI producers might find it more attractive to sell PCI into the high-CV thermal coal market.
And on July 20, the mid-tier PCI FOB Australia assessment slipped below FOB Newcastle 6,300 kcal/kg GAR thermal coal for the first time since Platts started assessing PCI in October 2011, to $58.75/mt compared with the 7-45 day price of $60.05/mt for FOB Newcastle 6,300 kcal/kg GAR.
After normalizing for higher calorific value and a general buyer-imposed penalty of $3/mt for low volatile matter based on estimates by a coal technical consultant, a seller moving PCI into the thermal market is able to make an average gain of $1.78/mt since May 5 over the FOB Newcastle thermal coal 6,300 kcal/kg price for mid-vol PCI, Platts analytical data showed.
This means PCI suppliers who are unable to move into the thermal coal market would have missed out potential earnings of $8.5 million, based on 4.8 million mt of spot PCI trades Platts observed since May 5.
The calculations do not include additional blending and logistical costs that varies across different locations.
In the first half of 2015, Platts collected 100 spot transactions comprising 7.5 million mt of PCI that was traded in or out of the Asia-Pacific region.
In comparison, total seaborne PCI trade in 2014 was 42 million mt--with up to 30% sold on the spot market, according to estimates by Platts and investment bank Goldman Sachs.
Because over 80% of spot volumes this year were concentrated in China, stagnating demand from Chinese end-users was a major driver of the recent PCI price collapse, most sources agreed.
"China's seaborne PCI volumes far overwhelm those going into India and Europe. So when China disappears, miners are left with all these excess tons with nowhere to go," a Singapore-based trader said.
Quality restrictions on trace elements, a 6% tax on imported PCI with above 14% VM (dry ash free), and significantly cheaper domestic alternatives have sharply reduced trade liquidity into China.
In the first six months of 2015, Platts observed only 5.9 million mt of spot PCI volumes changing hands in China, down 21% from a year ago.
In comparison, high-CV thermal coal prices have been largely underpinned by steady Japanese demand for Australian grades amid uncertainties over the restart of nuclear power plants, and lower exports from Indonesia earlier this year because of heavy rainfall in key coal producing province Kalimantan.
This led mining firms to look to either blend seaborne PCI with thermal coal, or sell unwashed PCI directly as thermal coal, to energy-intensive sectors such as steelmakers, utilities and cement producers for use as boiler fuel.
PCI coal is defined as a soft, non-hard coking coal that is finely ground for injection into a blast furnace during the coking process. It can also be used in place of thermal coal at boilers due to its high calorific value.
Indian steelmakers told Platts they have been blending PCI in small quantities with thermal coal to generate energy for their furnaces.
One steelmaker has been using a 20%-30% mix of Australian PCI with higher VM Indonesian thermal coal for the boiler.
A large Russian mining source said his company has been selling most of its PCI volumes unwashed as thermal coal to South Korea and Europe.
Article continues: Barriers to thermal coal usage