coal price rise

JAPANESE utilities have agreed with Chinese coal miners to a 28% increase in coal price, but to lower volumes for 2007 due to strong demand and historically high domestic prices.

Emerging as a net importer for the first time this year, Chinese miners have been reluctant to sell much of their thermal coal production abroad, as domestic prices soar along with freight rates.

The one-year contract price ending in March 2008 has been agreed at $67.9 per tonne, free on board basis.

This compares to just $53 agreed last year and well above the settlement price of $56 agreed between Australian coal producers and Japanese utilities this year.

Term contract volumes however have fallen to 5m tonnes from 8.5m tonnes, which will be supplied by Datong Coal and Shenhua at 3m-3.5m tonnes and 1m tonnes respectively.

But not all miners have agreed on the new price. The Yanzhou Coal Mining Company in Shandong rejected the agreement and demanded prices above $80 per tonne free on board (FOB).

Chinese coal exports have fallen by 28.6% to 15.87m tonnes in the first four months of this year, while imports have jumped to just over 50% to 19.22m tonnes.

As a means of controlling escalating domestic prices and utilising all of China's resources for domestic consumption, Beijing has recently abolished the 8% tax rebates on exports and has proposed extra export tariffs of between 10-15% to be effective from June 1.

Under a five-year contract with Chinese producers that ends in March 2011, the Japanese utilities negotiate the price every year with the Japan Coal Development, which represents 10 Japanese utilities.

Japanese utilities as a result of the recent negotiations with Chinese producers are likely to turn to Australia and Indonesia to meet the balance of their requirements.

According to Clarkson's Research, the major Australian coal exporter Rio Tinto has already reported a first quarter decline of 8% in thermal coal due to port congestion caused by the limiting coal handling capacity.

But with the quota system back up and running Australian coal exports have grown, rising to 28.5m tonnes, a 4.4% increase compared to the same period last year. This includes an increase of 2.1m tonnes in thermal coal.

Australian producers are already exhibiting strong growth in first quarter export trade to Japan, up 1m tonnes year-on-year to 15.1m tonnes according to Clarkson's.

Meanwhile, coking coal exports from China to Japan are expected to be slashed to 700,000 tonnes this year compared to 2m tonnes in 2006 as China appears to be rebuilding its coking coal stocks. China used to export 13m-14m tonnes per year of coking coal, but this has now been reduced to around 5m tonne each year due to the huge growth in domestic demand.

As the world's largest consumer of coking coal, China devours around 400m tonnes per year, since the resurgence of the country's use of blast furnaces in the steel making industry, but last year it only imported nearly 5m tonnes.

'Only in recent years have we seen China importing coking coal above 1m tonnes per year which peaked at 7m t in 2005,' said CRU senior consultant Ronnie Cecil. 'This year however China's import demand is up 13% this year to date,' added Mr Cecil.

With the fundamentals in the coking coal markets drastically changing since the start of this year, steel producers in China appear to have started to restock, reducing their exports while increasing imports.

'Port congestion in Australia seems to go from bad to worse on a daily basis,' noted Mr Cecil.

'This has been coupled with a restocking boom with a buoyant steel market encouraging mills to replenish coal stocks.' With Indian demand especially strong, Japan, the European Union and China are all stepping up their intake.

Japan is currently the largest importer of coking coal from New South Wales, Australia, with first quarter imports at 3.04m tonnes up 12.8% compared to the same period last year.

Mr Cecil warned that the recent price settlements for pulverised coal injection (PCI) and US coking coals have topped those levels fixed earlier this year.

With supply struggling to respond, Mr Cecil added 'it would not surprise me to see the return of more spot market sales and soaring spot prices'.

Copyright 2007 Informa Maritime Trade and Transport , Source: The Financial Times Limited


Provider:
Financial Times Ltd
Released : Wednesday, June 06, 2007 3:20 PM