Is coal's slump overdone? Australia's resilient exports suggest maybe: Russell
(Repeats item issued earlier. The opinions expressed here are
those of the author, a columnist for Reuters.)
* GRAPHIC: Australian coal exports vs price: https://tmsnrt.rs/2VtzzV9
By Clyde Russell
LAUNCESTON, Australia, April 8 (Reuters) - Australian
thermal coal prices plummeted last week, dropping to a 10-month
low after succumbing to a series of blows including concern over
imports by China and a lower contract price with Japan.
But while one should always be wary of trying to catch a
falling knife, there are some signs that the rapid decline in
prices in recent months has moved the market into oversold
The weekly price at Australia's Newcastle
port, the largest coal export harbour in the world, fell to
$74.57 a tonne in the seven days to April 7, according to Argus
That was 15.5 percent below the previous week's assessment,
and the polluting fuel is now 38 percent below its 7-1/2 year
peak of $119.74 reached last July.
The Newcastle spot price fared even worse,
slumping 20 percent in the week to April 5 to end at $72 a
tonne, the steepest weekly decline since the global financial
crisis of 2008/09.
Part of the blame for the poor price performance can be laid
at the door of the agreeing of contract prices between major
miner Glencore and Japan's Tohoku Electric Power
, a settlement that serves a benchmark for longer-term
deals in the region.
The price agreed was $94.75 a tonne for Australian thermal
coal supplied for the year through to March 2020, Reuters
reported on April 2, citing a source with direct knowledge.
This was 14 percent below the price agreed in October last
year for prices for the year to September 2019.
Glencore has two annual benchmark supply contracts with
Japanese utilities, typically negotiated by Tohoku Electric, one
for April through March and the other for October through
September that takes account of later market conditions.
It's not unusual for spot prices to drop after the
conclusion of contract negotiations, especially since Japan is
Australia's largest buyer of thermal coal, taking about 114
million tonnes in 2018.
Another headwind for Australian coal exports has been a
reported go-slow on customs clearances at some Chinese ports,
although this has been officially denied.
The reported increase in clearance times for Australian
coal, initially reported in mid-February, led to weaker coal
prices, a drop in the Australian dollar and a scramble by
Australian politicians to reassure that all was well with the
country's largest trading partner.
There is some evidence to support that China has eased up on
purchases from Australia in recent months, with Refinitiv
vessel-tracking and port data recording imports of 7.4 million
tonnes in March.
While this was higher than February's 5.8 million tonnes, it
was well below January's 8.1 million.
Still, looking at Australia's total coal exports, it seems
they are holding up relatively well, with a total of 32.1
million tonnes being imported by buyers in March, up from 27.5
million in February and only slightly below January's 33.4
South Korea imported 4.8 million tonnes of Australian coal
in March, up strongly from February's 3.4 million tonnes, while
Japan's March imports of 9.01 million tonnes were largely steady
from February's 8.98 million.
Overall, it's difficult to make a case for slumping prices
on the basis of a lack of demand, as the vessel-tracking data
clearly shows Australian coal exports holding up well.
However, the China uncertainty, slower global economic
growth and the end of the peak northern winter demand period are
all reasonable factors that are bearish for coal prices.
The question is whether the recent slump is now overdone,
especially if Australia's coal export volumes continue to show
(Editing by Richard Pullin)
First Published: 2019-04-08 07:30:48
Updated 2019-04-08 14:00:00
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