Widely anticipated interest from Indian spot buyers of seaborne coking coal has been quickly choked by the reversal of prices in recent weeks.
Indian coking coal buyers have remained largely on the sidelines in Q3 and despite the looming end of the monsoon season – when Indian mills were expected to resume spot buying – many are now even more reticent to book coal as long as the market is bearish.
“Once the spot price goes down, even just 5 cents, everyone waits for the market to bottom out,” said one source in India.
Since spot prices moved up to around $210/t FOB for Queensland origin premium low volatile coal in early September, driven by the Chinese market, a correction was widely anticipated.
The most significant trades last week were three cargoes of Saraji coal BHP sold Chinese steel mill Ansteel on a CFR basis at $195/t for November loading, $190/t for December and $185/t for January loading.
Three month fixed price deals are relatively unusual for BHP but the deal’s significance lies in what it reveals about the company’s pricing view for the rest of the year and into 2018.
Few trades had been reported in the weeks before these BHP deals and spot prices which had been fairly stable until that point quickly began to move down.
Multiple assessments from market participants highlight that the spread between buyer and producer views is large, indicative of how divergent views are about how far and how fast prices will fall.
On September 26 IHS assessed prime hard coking coal at an FOB price of around $193/t and second-tier coal at around $162/t FOB.
Meanwhile, Australian coal supply has become more readily available in recent weeks and various qualities are now being offered in India according to sources.
Up to ten cargoes of second-tier coals are reportedly available but buyers are waiting for prices to drop. Trader/producer price ideas for some of these coals just last week were around $165-170/t FOB but since then price expectations have dropped by around $10/t.
For buyers to be interested a second-tier cargo being offered in India would need to be priced below $165/t on a delivered basis. Freight from Queensland to Indian East Coast ports is assessed at around $15/t at the moment, suggesting an FOB netback of around $150/t.
But producer sources are not at that level having seen deals around $175/t FOB just two weeks ago. One told IHS he would rather not sell then accept such prices at the moment.
Some transactions have been done in India including last week’s deal by a trader who sold a Riverside cargo for September loading at a 2% premium to the average September index to an Indian mill.
Two cargoes of Moranbah North coal are believed to be in the hand of traders, one for end-September and other mid-October loading, though price ideas have not been heard.
Indian East Coast ports are reportedly moving stocks to domestic coke makers who are maximizing the current arbitrage window that has seen Chinese coke priced at higher levels than the estimated $300/t an Indian cokery can produce at current prices.
Also last week a US cargo of 64 CSR, 0.9% Sulphur coal was picked up by two coke makers at a CFR price around $190/t.
Sources said Indian buyers continue to push for index-linked deals rather than fixed price deals.
In other Indian related coking coal news, calendar Q4 contract discussions between the major mills and coal suppliers wrapped in mid-September. BHP will supply SAIL with 12 cargoes of prime hard coking coal, Anglo will provide nine cargoes of its hard coking coals, and Peabody two cargoes of North Goonyella coal.
RINL is believed to have agreed on around 250 kt of hard and soft coking coals from both BHP and Anglo.
Marian Hookham is Research and Analysis Associate Director, Coal at IHS Markit.
Posted 3 October 2017