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Asian thermal coal prices collapse as demand, defaults weigh on market

By Mike Cooper, Perth with additional reporting by Cecilia Quiambao, Manila

June 27, 2012 - The surge in the number of defaulting cargoes and bearish sentiment regarding second half 2012 demand has seen thermal coal prices slump in recent weeks.

Spot prices for cargoes of higher ash Newcastle 5,500 kcal/kg thermal coal plunged below $80/mt FOB Tuesday, as market expectations of a near-term recovery in Chinese spot demand gave way to fears that China buyers' interest in imported thermal coal could stay weak for at least the next two to three months.

Platts assessed the price for FOB Newcastle thermal coal with a calorific value of 5,500 kcal/kg net as-received, typical ash of 20% on an air-dried basis, and for delivery within the next seven-45 days, June 18-July 26, at $79.50/mt and down 75 cents on-day.

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"Many power plants in China are refusing to accept any more cargoes, even if you offer a discount of $1-2/mt off prices, as their stockpiles are full," one trader in China said.

He went on to say that many Chinese coal traders were keeping a close watch on the seaborne market, but were unwilling to re-enter it at a time of high price volatility.

"Buyers are afraid that if they buy now, prices could continue to fall further," he said.

Trading has been exceedingly thin in the Newcastle spot market for the past couple of weeks and price information has become sporadic as Chinese buyers decline to show bids, and sellers of higher ash product have been reluctant to post offers in a declining market.

A number of market sources contacted by Platts Tuesday said they saw fair value for June and July shipments of Newcastle thermal coal with maximum ash of 23% at between $77-78/mt FOB.

Platts' Newcastle 5,500 kcal/kg NAR price assessment is for product with typical 20% ash, and Platts considers that every 1% increase in a cargo's ash content merits a 90-cents decrease in its price for assessment purposes.

Producers reluctant to sell below $80/mt FOB Australian coal producers were said to be resistant to selling fresh cargoes at these values because for many their average production costs were about $80/mt, according to market sources.

Although, several participants in the Asia-Pacific market said sellers with defaulted cargoes of Newcastle higher ash product on their hands had agreed to let them go at prices significantly below $80/mt FOB, recently.

Higher ash Newcastle thermal coal prices have been on a downward trend since April, when at the time they were trading in the low $90s/mt FOB, and prices have been under sustained pressure due to an influx of competitively-prices cargoes of Colombian and US fuel.

In a further sign that demand for Newcastle market was waning, premium-quality Newcastle 6,000 kcal/kg NAR thermal coal which is usually sold to Japan was heard offered in the Chinese market at $96-97/mt CFR China.

Platts assessed the prompt-month price of Newcastle 6,000 kcal/kg NAR thermal coal at $85.75/mt FOB at Monday's market close, compared with $89/mt FOB on Thursday. (See related graph: Daily Coal Price Trends- Physical ($/mt))

US 5,500 kcal/kg NAR higher sulfur thermal coal was also heard offered to Chinese customers at $95/mt CFR China.

"Very few customers in China can take this type of coal. It is a strong sign of oversupply," a China-based trader said.

Next page: Market lull in China to last some time: trader

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