The Radical Change in Asia's Physical Coal Market

The radical change in Asia's physical coal market

By James O' Connell in Singapore, and Mike Cooper in Perth

April 18, 2012 - On January 3, 2012, Platts launched a daily 7-45 day forward FOB Newcastle 5500 kcal/kg Net As Received thermal coal price assessment, the first publisher to do so.

Sustained high prices on the industry standard FOB Newcastle 6000 kcal/kg NAR quality coal began to reduce demand for the spec from late 2010, as a result of many buyers being priced out of the market.

Independent analysis from investment banks and independent market consultants has indicated a major drop in both physical and financial market liquidity.

This drop was as high as 50% in 2011 year-on-year and may indicate that confidence in the current benchmark has considerably weakened.

The slide in physical liquidity does not mean that less tonnage has been traded, on the contrary.

Unrelenting demand for imports, most importantly from China, Korea and Taiwan end-users saw Australian producers reconfigure their product offerings to align with market demand.

This is prompting a shift in Newcastle spot cargoes to a lower calorific value specification with spot volumes concentrating around a new specification of 5500 kcal/kg NAR since mid-2011.

Platts has ascertained through extensive market engagement a strong rationale for implementing a shorter delivery period with regard to Newcastle spot cargoes.

A 90-day trading window can often find a wide margin of bid offers between the front and the back-end of the window, often of the double-digit dollar variety.

Narrowing the trading window effectively reduces the ability to create such a wide range.

It's not so very long ago that the coal market was trading a 180 day forward window, and this narrowing is a natural extension of a market maturing and participants moving toward a more effective trading period and a true spot market.

The physical coal market in Asia has altered radically. In the...