Newcastle prices take a breather

The rapid escalation in prices paid for spot Newcastle steam coal traded out of Newcastle, New South Wales appears to have halted late last week.

“It’s the first fall in Newcastle prices which have been on an upward trajectory for weeks,” said coal market analyst Andrew Harrington at Australian stockbroker Patersons Securities. Newcastle spot prices had been gathering momentum since early April when Japanese utilities fixed their 2008 fiscal year coal contracts at $125/mt and peaked at close to $200/mt FOB last week.

Physical market activity on globalCOAL was slower last week compared with the previous week. The first trades for physical Newcastle coal this week went through July 9, at $185/mt for a September 15,000 mt cargo and $184/mt for a same-sized October cargo. On July 1, globalCOAL’s FOB Newcastle contract traded at $196/mt for September, $197/mt for October and $201/mt for December delivery.

Coal market sources put forward two reasons for the apparent softening in physical Newcastle prices. Firstly, better vessel loading at Newcastle port and secondly, reduced spot demand caused by the preceding weeks’ high prices.

“The vessel queue is coming down and will be about 30 ships in a couple of weeks,” said one shipping source. He stated that high demurrage costs have spurred Australian coal shippers to operate on a more efficient basis. “Shippers of coal are waking up to the fact they don’t have to pay demurrage if they are much more efficient,” he said.

Demurrage is a fee paid by charterers for the time a vessel is unable to load cargo in port. Therefore, the longer vessels queue at port, the higher the demurrage fee.

The number of vessels waiting to load coal at Newcastle port was 40 at midnight July 9, according to the Chain Logistics Team website.

A coal market analyst was skeptical that Newcastle’s shipping performance could be turned around so quickly.

“They have had five years of problems and suddenly they are getting their act together,” he said.

Another coal market analyst suggested the port’s capacity balancing system, which matches vessels to available coal supply chain capacity, was helping to reduce congestion at Newcastle.

He said that this week’s drop in Newcastle coal prices was consistent with easing oil prices over the past week. It may also be the case that higher coal prices had choked off physical demand.

The analyst added that this week’s softening in Newcastle coal prices could mean two possible scenarios.

Either, that at $200/mt FOB prices had reached a threshold beyond which further rises were unlikely or, the market has taken a temporary break before moving up again.

News Source : Issue 877 / July 14, 2008 / Platts-International Coal Report – copyright The McGraw Hill Companies

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