New York — The recent recovery in thermal coal prices appeared to have a limited impact on semisoft coal amid a weak price environment in the metallurgical coal market, participants said.
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Register NowAustralian thermal coal prices have been on an uptrend, led by a demand recovery in the Northern Hemisphere as end-users restock for winter.
Japanese power utilities made plans to use thermal coal as their main energy source from January to February 2021 on anticipation that LNG prices would surge. Similarly, restocking needs for the winter season merged from Taiwan for the high calorific value thermal coal.
A February-loading Panamax shipment of 6,000 kcal/kg NAR Australian coal was concluded at $83/mt FOB Dec. 16, up $20/mt on the month, S&P Global Platts data showed.
This would translate to about $102/mt FOB Australia, converting 6,000 kcal/kg NAR to typical semisoft CV specifications of 6,300 kcal/kg NAR. The calculation assumes a $4.50/mt conversion cost and a 90% yield rate of semisoft from thermal coal.
Weak met coal prices
Market participants said there was limited upside for semisoft prices as premium hard coking coal prices continue to hover about $100/mt FOB Australia, a four-year low since July 2016. This has kept buyers on the sidelines as weaker grades of coal lost their price competitiveness against premium hard coking coal material.
"Demand for semisoft usually weakens when prices of premium coking coal are low, and vice versa. Semisoft coals were used for cost reduction purposes, if the relativities of semisoft rallied beyond 80%, end-users would reduce semisoft blending ratio to minimum level and increase usage of PLV," an end-user in north Asia said.
Relativities of spot semisoft coking coal prices against Platts PLV FOB Australia hit a four-year high of 77.6% on Dec. 16. However, Australian producers with coal washing facilities still have little incentives to sell semisoft as they could fetch higher prices by selling as thermal coal.
At the same time, demand for semisoft in the spot market was weak as China has turned away from Australian coals temporarily, and much of the semisoft volumes are locked in contractual terms.
Economically, it made sense for Australian coal miners to sell thermal coal instead of semisoft. However, major semisoft producers may have preexisting contracts with wash plants, a northeast Asia-based trader said.
"They might have limited options but to transform thermal coal to semisoft in accordance to the contracts," he added.
Market participants also talked about the differences in demand for these two types of coals, with firm spot demand driving up spot thermal coal prices, while semisoft spot demand was limited.
Thermal coal market
Australian thermal coal prices for 6,000 kcal/kg NAR grade gained momentum on the recovery in demand and tight supply from other suppliers like Russia and Indonesia in the near term. Thus, it made sense for Australian miners to sell thermal coal instead of semisoft, sources said.
Prices for the lower grade of thermal coal with 5,500 kcal/kg NAR also tracked higher, as end-users in Japan capitalize on the wide price arbitrage between 5,500 kcal/kg NAR and 6,000 kcal/kg NAR grades -- estimated to be about $25/mt FOB Australia Dec. 16 -- to fulfill their near-term needs. Demand for the former coal grade also saw buyers from India, and the 5,500 kcal/kg NAR grade is now competitively priced against a similar grade of coal from South Africa, an Australia-based miner said.
Meanwhile, prices of 6,000 kcal/kg NAR Russian coal and Indonesian coal across all grades also increased as spot availabilities decline ahead of severe weather conditions, including icings in Russia during January and a wet season in Indonesia at present, while China eased entry of non-Australian coal Dec. 12, according to sources.