A flurry of trades for prompt-loading Australian coal exchanged hands on Tuesday, with prices reaching a two-month high near $92 a tonne, although the high prices could be linked to term contract talks.
The robust prices paid, which come amid tepid Asian demand, have raised eyebrows among some in the industry as recent tender results showed that end-users were able to buy prompt-loading coal at much cheaper prices.
Some parties could also be wanting to influence the index prices through these trades, said a Sydney-based coal trader. Or it could also be that some traders are short on coal and are trying to make up some tonnes urgently.
Two small parcels of Australian coal for February delivery were traded at $91 and $91.65 a tonne, respectively, the highest since mid-November last year.
Several parcels of Australian coal for March delivery also exchanged hands at between $80 and $83 a tonne, electronic platform globalCOAL said on Tuesday.
The string of trades on Tuesday comes on the heels of 11 other physical trades that have occurred since Friday, when prompt-loading Australian coal exchanged hands around the mid-$80s level, when the index was hovering below $80 a tonne.
Several industry sources and producers said the latest trades could be due to some posturing ahead of preliminary contract talks between Australian coal producers and key Japanese utilities for the headline coal contracts that begin in April 1, 2009, the start of Japan's fiscal year.
South Korean utility Korea South-East Power Co's (KOSEP) recent tender results showed that winning bids were priced at about $63 a tonne for coal with a heating value of 5,100 kcal (NAR), a trader who participated in the tender said.
The bids represent about $72 a tonne when compared with globalCOAL's NEWC index's standard coal specification of 6,080 kcal/kg (NAR).
NO SHORTAGE OF COAL
There is plenty of coal floating around in the market, either in Australia, Indonesia or South Africa. It's hard to imagine why someone would pay a $20 premium above index prices when it's possible to buy coal even at below index prices, said a Singapore-based trader.
With South African coal prices hovering at a near $10 discount to Australia and freight charges near multi-year lows, traders said end-users in Asia could purchase coal from South Africa and the landed price could still be lower than the recent prices paid for Australian coal.
Thermal coal prices on the globalCOAL Newcastle weekly index rose $4.52 to $85.98 a tonne in the week ended Jan. 19, while prices for South Africa's coal stood at $74.15 FOB Richard's Bay port.
Macquarie Group on Tuesday cut its forecast for 2009 thermal coal benchmark contract prices by 29 percent to $75 a tonne, versus $125 a tonne agreed last year.
As the market appears to be relatively well supplied over the medium term, it's difficult to identify a specific catalyst to take prices back significantly above our long term assumption of $70 a tonne, Macquarie said in a research note led by Adam Worthington. But Worthington added that a willingness by Japanese utilities to pay a premium to secure higher-quality Australian coal may help lift prices.
(Reporting by Fayen Wong; Editing by Michael Urquhart)
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