A rally in Australian coal prices has fizzled almost as quickly as it started, brought down to earth by oversupply and weakening Chinese demand, setting the stage for lower annual price agreements with Japanese utilities.
Asian benchmark thermal coal prices from the Newcastle terminal climbed as much as 30 % between January and February, lifting prices off six-year lows just over AUS$60 a tonne to a peak of AUS$80 at the end of February, before retreating to around AUS$68.
Some attributed the burst to moves in China to restrict so-called dirtier coal in favour of cleaner Australian coal as it tackles air pollution, a drop in U.S. exports, output cuts by Glencore and a 30% rise in oil.
“There’s no one single reason for the price rise,” said Tony Weber, chief executive of Australia-listed miner Universal Coal. “But at the end of the day, there is still a lot of pressure from supply on the price.”
Others pinned the lift to aggressive buying ahead of influential Japanese supply negotiations in the hope of establishing a stronger footing for the talks.
In past years, the prices for contracted coal by Japan – about 60 million t – typically settled at around a AUS$7 per t premium to spot prices.
ANZ Bank has lowered its 2015 (April 1-March 31) Japanese contract price forecast to AUS$70 a tonne from AUS$75, citing abundant supplies. National Australia Bank puts it at AUS$72.50/tonne. This compares with AUS$81.80/tonne last year.
Policies in China, the world’s biggest coal producer and importer have continued to reverberate this year. The country is increasingly favouring higher-quality coal mined in Australia due to pollution targets.
China has also switched imports away from South Africa to Australia as its utilities prepare for implementation of a Free Trade Agreement (FTA) with Australia.
“What China imports, it wants from countries with high quality coal and an FTA in place or in the making. That’s Australia,” a coal trader said.
Traders say that the market may have found its floor at AUS$60 a t, a level that all but eliminated spot selling to Asia and Europe by U.S. producers.
“Many miners see AUS$60 a t as a make or break point. Every time prices drop close to that level output gets hit,” the trader said, but added there was still enough seaborne coal to prevent a big price rally.
Edited from source by Joe Green
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