Asia Coal-Australia thermal coal prices increase on China demand

PERTH, Sept 6 Tue Sep 6, 2011 1:54pm IST

PERTH, Sept 6 (Reuters) - Australia's thermal coal price index rose to over $124 per tonne in the week ended Monday as buying interest, especially from China, began to pick up and Australian coal supplies showed signs of tightening.

Thermal coal on the globalCOAL Newcastle index for the week to date was $124.13 per tonne on Monday, up from $121.50 per tonne a week earlier.

A 25,000-tonne parcel of Australian thermal coal for October delivery traded at $123.50 per tonne free-on-board on the globalCOAL platform on Tuesday, up from $121 per tonne paid for a 25,000-tonne parcel in late August.

"In general it seems the overhang of excess coal in Newcastle-- 6,000 kcal/kg coal-- that we saw in the third quarter is starting to disappear," one Sydney-based market source said.

Exports of coal from Australia's Newcastle port, which handles most of the country's thermal coal exports, increased 18.4 percent in the past week.

Demand for the standard 6,000 kcal/kg NAR Australian grade coal with low ash content was thin, with Australia's primary coal customer, Japan, still seeing weakened demand due to the March tsunami that knocked some of its power plants and ports offline.

But demand for higher ash Australian coal that does not meet the standard Newcastle specifications, also known as "off-specification" coal, was up.

"There's been a reasonable interest in Australian off-spec coal, mainly from China... it is providing a floor to the Newcastle price and there is quite a bit of that moving," the Sydney-based source said.

Chinese inquiries for coal were up, with domestic prices in the world's largest energy consumer between 820 yuan ($128.41)and 830 yuan ($129.98) per tonne for 5500 kcal/kg coal.

Last week, sources said a Chinese importer of thermal coal also bought a prompt cargo of standard-grade South African coal at $129.50 a tonne CFR, a deal made possible by low freight rates and FOB Richards Bay South African prices, which dipped late last week to $115 a tonne.

Still, China's coal imports this year are expected to pull back from the record level in 2010 despite strong domestic demand, as growth in local production and transportation capacity help meet overall demand.

Top thermal coal exporter Xstrata has begun negotiations with Japanese utilities for their annual contract beginning Oct. 1, but has not yet agreed on a price with Xstrata's offer at $127.50 per tonne and the utilities countering with $125 per tonne, sources said.

In their last negotiation, which began before the quake in Japan, and was settled soon thereafter, Japanese utilities agreed to a price just below $130 a tonne for the annual contract beginning April 1, the primary supply contract for the year. ($1 = 6.386 Chinese Yuan) (Additional reporting by Fayen Wong in Beijing; Editing by Himani Sarkar)

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