Asia Coal-Australia thermal coal prices up over $127/tonne

PERTH Wed Feb 2, 2011 1:35pm IST

PERTH Feb 2 (Reuters) - Australia's thermal coal prices, a benchmark for Asia, climbed to more than $127 a tonne week to date, supported by the ongoing impact of floods in Queensland state on coal supplies.

Thermal coal on the globalCOAL Newcastle index for the week to date was $127.88 per tonne on Tuesday, up from $124.44 a week earlier and up more than $5 from $122.98 on Friday.

"It's definitely very tight. The floods have had their impact, no doubt about it. It's tight on the ground and most people feel it," one trade source said.

"It seems to be tight everywhere - I don't think there are any coal-producing basins globally that are not tight and it's obviously reflected in the price," the source said.

With supplies scarce and the start of the Chinese New Year, however, traders said that actual deals done were few and far between.

"I'm not actually sure how much physical has been done out of there," a Sydney based trader said. "There aren't that many physical tonnes to be traded."

The market was also keeping a close eye on Cyclone Yasi, which was barreling toward Queensland's northern coast and expected to land on early Thursday.

Floods in Queensland have already caused about 5.5 million tonnes of Australian production to be lost, according to a Reuters poll conducted last week.

Although Queensland produces mostly coking coal used for steelmaking, it does produce some thermal coal and any more severe weather could cause further production losses and reduce supplies.

Xstrata has already shut its 6 million tonne per annum (mtpa) Collinsville mine, which produces both coking and thermal coal, ahead of the cyclone. The company is also considering shutting its Newlands mine, which produces 11 mtpa of thermal and coking coal for export.

Supplies from neighboring Indonesia are also expected to be restricted with some Indonesian coal traders have declared force majeure after a trade rule change, with around 60-70 vessels stuck in various ports and 3.5 million tonnes unable to be shipped.

WEEK AHEAD

The market will continue to monitor Cyclone Yasi and watch for impacts to both coal mines and infrastructure. Any further coal disruptions could spark another price rally in thermal coal.

In the wake of the Queensland floods, thermal coal prices climbed nearly 30 percent to over $140 per tonne in mid-January from about $110 per tonne at the beginning of the year.

With supplies tight, market players will be looking for Japanese, South Korean, and Taiwanese utilities to begin looking for supplies later on in the year.

Utilities in the three countries, all major importers of coal, have indicated that they are well supplied for the first quarter despite some disrupted supplies from Australia.

However, most have not been in the market for coal supplies for later on in the year.

"Utilities will get a bit of surprise when they come back into the market to procure coal for the second quarter because they will realize there is not a lot of coal left," another Sydney-based trader said. (Editing by Ed Lane)

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