05-03-2018

Northeast Asia arbitrage for Colombian coal reopens: sources

The price for prompt delivery Colombian thermal coal to northeast Asia is more favorable than that for its traditional Atlantic Basin markets as producers and traders looked to sell additional spot cargoes, according to S&P Global Platts data.

Platts weekly FOB Colombia price was assessed at $76.25/mt Friday and the dry bulk freight rate for a Capesize cargo sailing from Colombia to northeast Asia was heard around $20-$23/mt this week.

This gives a theoretical net-forward price of around $97.75/mt, while Platts NEAT index was assessed at $104.90/mt, which gives a price of $109.45/mt when adjusted to a 6,000 kcal/kg NAR basis.

This means the arbitrage is $11.70/mt.

The opportunity is the result of a weak pricing environment in Northwest Europe while prices in Northeast Asia have yet to see the sharp declines which have affected the Atlantic Basin in recent weeks.

“With the big drop in delivered-Europe prices and lower FOB number from Colombia, the arbitrage is definitely reopened,” a seller of Colombian coal said.

Although Continental Europe and Turkey remain the most popular destinations for Colombian coal, sell-side sources with any additional tonnes displayed almost no interest in these markets for spot sales.

“We will always look to Europe for regular sales, but delivered-Europe prices are so weak it makes more sense to send coal to East Asia,” a trader of Colombian coal said.

According to Platts data, the most popular destinations in Asia for Colombian coal are South Korea, Japan, and the trading hub of Singapore.

Taiwan and China have also seen more imports of Colombian coal, and interest from South Asian countries had also been reported.

Pricing amongst these countries had been driven to multi-year highs due to cold weather earlier this year and strong demand in the run-up to the Lunar New Year, while upcoming annual negotiations between Japanese utilities and Australian miners continue to provide support in the form of well-bid Australian 6,000 kcal/kg NAR coal prices.

Some Indian consumers have also expressed interest in lower-calorific value Colombian coal recently, but the buyers’ preference for prompt arrival times kept South African and Indonesian coal more competitive.

SHIPPING

One potential issue Colombian sellers face is the long sailing times and relatively expensive dry bulk freight rates.

Vessels fixed on subject are bound to fit all the requirements within a specific time frame and depend on loading and discharge dates, which can become problematic when dealing with the conservative procurement strategies of northeast Asian utilities.

“We have to watch out for freight volatility because it can shut [the arbitrage window] quite quickly, but we still favor selling to Asia,” a producer and trader of Colombian coal said.

Another shipping problem Colombian coal has is vessel size, as growing markets in Asia — such as Pakistan — are unable to take ships larger than a Panamax, meaning Colombian coal will be effectively priced out of these markets.

“If [growing Asian markets] can’t take Panamaxes I then I don’t see how the freight can work from Colombia,” the trader added.

Source: Platts

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