Thermal coal prices drop to $100 level
The cost of thermal coal in Asia, the biggest consumer of the commodity used to firepower stations, is flirting with the key $100 a tonne level for the first time in 18 months as supply continues to flood the market, Financial Times reports.
US thermal coal producers have been shipping unusually high amounts of the commodity into the Asia-Pacific and Atlantic markets as domestic consumption has fallen due to increased competition from cheaper US natural gas.
“Demand isn’t that bad. It’s more of a supply story,” said Hayden Atkins, commodities analyst at Macquarie Securities in London.
The cost of the commodity in Rotterdam, the European benchmark, was at $93 a tonne, its lowest since September 2010, while at the Australian port of Newcastle, the Asian benchmark, was at $100.50, the lowest since October 2010.
The recent annual contract agreement between Xstrata and Japanese utility companies for thermal coal at $115.20 a tonne for the year starting April 1 seemed to put a floor on the market temporarily. However, the price declines have accelerated over the past few days. “What could be happening now is a fire sale by someone willing to sell excess stocks at any price,” Mr Atkins said.
Facing lower demand in the US after natural gas prices fell to the lowest in 10 years, coal miners there have been taking advantage of low freight rates to export, creating a glut in the global seaborne coal market this year. But US miners have started to cut production, particularly in the high operating cost Appalachian basin, in the face of weak demand in order to save cash.
But Shiyang Wang, analyst at Barclays in New York, said that although production in the Appalachian basin had been cut, US coal – namely from the Illinois basin and the Powder River Basin in the centre of the country – was still being exported. “US coal supply [to global markets] has fallen only a little bit,” she said.
Despite the fall in international seaborne coal prices, analysts said domestic markets in both India and China remained stable. Chinese prices have been steady while the main Daqin railway in northern China, which carries coal to the Qinhuangdao port for shipment to the urbanised coastal areas of the country, was undergoing its annual maintenance. China overtook Japan last year as the world’s largest importer of thermal coal. India is the third largest buyer of overseas coal.
China has been a fairly active importer of coal so far this year as it took advantage of lower prices, Ms Wang said. However, import figures for the first quarter are still down 19 per cent from the fourth quarter in 2011. “Chinese demand is not as strong as last year due to the economic environment,” she said.