Chinese buyers default on coal shipments
Chinese traders have defaulted on some thermal coal contracts following a drop in prices over the past month, traders said on Monday, providing more evidence that a slowdown in the world's second-largest economy is hitting the appetite for commodities, Reuters reports.
The coal defaults also come after sources at steel mills and traders said last week that some iron ore shipments had been postponed.
China is the world's biggest consumer of iron ore, coal and other base metals, but recent data has shown the economy cooling more quickly than expected.
At least six defaulted thermal coal cargoes were being re-offered at a discount, traders said, with contracts for shipments from the United States, Colombia and South Africa the main casualties. At least half the cases involved contracts to buy U.S. coal.
"Many of them signed for the spot cargoes in early April and prices have fallen around $10 a tonne since then. Say if the Chinese traders were buying a cape-sized shipment, they'd be suffering a loss of nearly $1.5 million alone," said a trader at an international firm who has been offered defaulted cargoes.
"That doesn't even take into account the losses on freight rates. So rather than being bankrupted by these deals, they would rather dishonour the contract to survive."
Thermal coal prices from South Africa have fallen $10 since early April to $94.83 a tonne on Friday, according to the globalCOAL index. Australian coal prices, seen as a proxy for Asian prices, have also fallen by a similar amount to $97.50 a tonne.
A recent slump in freight rates was also exacerbating losses for buyers, traders said.
Freight rates from the United States to China have dropped in the last three weeks, with charges for a Panamax vessel losing a third since April 26 to $8,333 a day on Friday.
Concerns over defaults were also spilling over to the iron ore markets, where prices IODBZ00-PLT have dropped around 10 percent since late April to hover at $134 a tonne.
"We ourselves have had one of our buyers default on us after just a few hours. We sold the cargo to an end-user in China and a few hours later the buyer came back, saying 'the market's falling too fast we want a lower price'," said a Singapore-based iron ore trader.
Chinese data showed the country's economic expansion was cooling more than expected. Industrial output growth slowed sharply in April and fixed asset investment, a key driver of the economy, hit its lowest level in nearly a decade.
A Reuters poll expects economic expansion in the second quarter to slip to 7.9 percent, which would mark the sixth consecutive quarter of weakening growth.
Reflecting greater caution, BHP Billiton, the world's biggest miner, has put the brakes on an $80 billion plan to grow the company's iron ore, copper and energy operations.
Slumping commodity prices and escalating costs have squeezed cash flows, pushing BHP to join rival Rio Tinto reconsidering the pace of their long-term expansion in countries such as Australia and Canada.