SHANGHAI Traders in China have defaulted on at least three Australian thermal coal shipments in recent weeks, trade sources said on Wednesday, pressured by a dip in regional prices and high stocks in the world's top coal importer.
While analysts and traders said it was unlikely to signal the start of a wave of cancellations in deals, the defaults could put pressure on prices after signs of a revival earlier this month.
Australia's Newcastle spot thermal coal index has fallen as much as 30 percent since the start of 2012 to a year-low of $81 a tonne, although prices have rebounded this week to about $84 largely in line with firmer oil prices.
"Prices might come off slightly but I don't think the defaults are going to prompt a sharp fall in domestic and regional prices like what happened in June," said a coal analyst, who asked not be named due to company policy on talking to the media.
"While stocks remain high, power consumption has begun to pick up in October. That, along with winter demand, is going to offer support," added the analyst.
Traders had signed agreements to buy November-delivery cargoes in early October, according to the three sources, when benchmark Australian coal prices were at around $85 a tonne.
The defaults came after prices slipped to a low of $81.40 in early November.
"Prices fell around $2-$3 a tonne when it was close to the delivery period. Stockpiles at ports and power plants were also high, so some of them got worried," said one of the sources, who declined to be identified as they were not authorized to speak to the media.
The defaults were for three small cape-sized vessels, which usually carry around 130,000-150,000 tonnes, and were mostly for Australian thermal coal with a calorific value of 5,500 kcal/kg (NAR), said two of the sources with direct knowledge of the deal.
A fall in China's benchmark thermal coal prices last week, the first in ten weeks, has also unnerved some local buyers.
"It was a combination of reasons; weak demand, high stocks and some of them might be having problems issuing letters of credit at year end," said a second trader based in China.
IRON ORE VS COAL
Total coal stocks at major Chinese power plants stood at 93.7 million tonnes at the end of October, equivalent to 29 days of consumption, which is eight days more than at the same time last year and close to double the historical average of around 16 days, the government said on Tuesday.
Still, traders said the defaulted cargoes were being resold in the market with relative ease and they were cautiously optimistic it would not spark a string of cancellations as Chinese enquiries for Australian coal were still coming in.
Global coal prices have struggled to rebound in the second half even though China's has announced some pro-growth policies to boost its sagging economy.
While iron ore has rebounded to around $121 a tonne from a three-year low of $89 struck in September, steam coal prices are still languishing near the lowest in around 2.5 years.
Analysts said iron ore had performed better because China was short on supplies. Prices have also been bolstered by the government's approval of some $160 billion worth of infrastructure projects since May.
In the case of coal, where China is also the top producer, demand has been hit by a slowdown in the broader economy, with manufacturing having shrunk for the 12th successive month in October.
(Editing by Ed Davies)
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