In Asia Pacific thermal coal circles it is known as the “great decoupling” and refers to the yawning gap between spot traded prices for Newcastle 6,000 NAR thermal coal and another grade of Newcastle thermal coal, 5,500 kcal/kg NAR.
That gap has blown out to an unprecedented $50/mt, from only $10/mt in early February, and the phenomenon has not gone unnoticed in wider business circles.
A September 12 report in the London Financial Times headlined “Why Asia needs a new thermal coal price benchmark” discusses this dramatic price gap and speculates that it might imperil existing benchmark indices for the 6,000 kcal/kg NAR grade.
Proponents of high prices for Newcastle 6,000 kcal/kg NAR coal insist supply of this specification remains tight due to underinvestment in Australia’s coal sector and recent industry consolidation. Others are unconvinced, pointing to the small number of spot trades for this grade at irregular intervals, and clustered around the time of Japanese contract price talks.
The price gap could be squeezed sooner than many expect, as Japan quietly moves to restart a number of its stalled nuclear power generators left idle since the Fukushima accident in 2011.
Newcastle 6,000 kcal/kg NAR benchmark prices also appear to have decoupled from market prices for other grades of thermal coal, including Platt’s NEAT coal index for Japan, South Korea and Taiwan, and which some would argue is a contender for Asia’s new price benchmark for thermal coal.
For NEAT, an index that tracks the price of cargoes delivered to Japan on a 5,750 kcal/kg NAR CV basis, the price differential to Newcastle 6,000 kcal/kg NAR prices is currently $30/mt, after hitting a high of $37/mt in August.
The NEAT price index is based on traded prices for the liquid Newcastle 5,500 kcal/kg NAR market, which is generally shipped to China, though cargoes have traveled to India, Turkey and Mediterranean Europe, plus indicated freight for Panamax ships on the Newcastle to Kinuura, Japan trading route.
The lift-off in Newcastle 6,000 kcal/kg NAR prices started in early May, around the time that annual price negotiations for deliveries of Australian shipments to Japanese power plants over the 2018-2019 Japanese financial year became intractable.
Instead of being wrapped up quickly in convivial meetings over tea in Tokyo, this year’s talks foundered amid a soured atmosphere as price negotiators for the largest buyer and seller of Australian thermal coal in the Japanese market were unable to agree a price for their April-year term contracts.
Eventually, the April talks were abandoned, and a benchmark deal was salvaged when two other Japanese power companies and their large Australian supplier agreed a price of $110/mt for shipments of Newcastle 6,322 kcal/kg GAR — equivalent to 6,000 kcal/kg NAR thermal coal — for the Japan’s fiscal year 2018-19.
The price differential between Newcastle 6,000 kcal/kg NAR prices and NEAT and Newcastle 5,500 kcal/kg NAR continued to expand through June to August as Chinese demand for high-ash Australian thermal coal slumped on import controls, and its price hit close to $60/mt FOB Newcastle.
How much longer prices for Newcastle 6,000 kcal/kg NAR thermal coal — the grade used mostly by Japanese power generators — can remain out of kilter with wider Asian market prices will have to be seen.
It is a multi-million dollar question, to which only the market can provide an answer. But, when it happens, the price correction could deliver a heavy blow to those with bullish market positions for Newcastle 6,000 kcal/kg NAR thermal coal.
Source: PlattsPrevious Next
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