South African prompt physical coal prices traded at the lowest level since February 2010 on Thursday, $81.65 a tonne FOB, as oversupply continued to weigh on the market.
South African prompt cargoes are being sold into Europe for the first time in months because freight rates are so low and European buyers are seen as more reliable counterparties than some who have recently defaulted or re-negotiated prices in Asia, traders and utilities said.
Barely any South African coal has been shipped into Europe's main coal importing hub Amsterdam-Rotterdam-Antwerp for the past several months because other origins were cheaper on a delivered basis.
“Everyone in Europe can take South African to use it or trade it but only when, for whatever reason, it prices in competitively,” one utility source said.
DES ARA European delivered coal prices held steady for the second day running at $82-85 a tonne on Thursday while prompt South African FOB prices have held at similar levels.
Capesize freight rates between South Africa's Richards Bay and Amsterdam-Rotterdam-Antwerp are now just above $5.00 a tonne - which does not even cover the cost of bunker fuel on the voyage.
The “implied freight” (coal market parlance for the differential between delivered and FOB prices which in theory should reflect the freight cost) had become distorted earlier this year, with FOB prices higher than delivered.
This differential would need to be at least $5.00 a tonne for cargoes to be shipped to Europe but Chinese price re-negotiations have made some sellers so nervous about China business that they are taking the European option.
“If you have the choice between poor European prices and an Asian buyer who may default, you'll take Europe,” one supplier said.
At least one trader and a non-trading utility in Europe have bought South African cargoes this week and others are enquiring for Richards Bay to ARA freight.
There is Asian buying, however - a capesize cargo of South African coal was sold into China by a producer this week and Indian spot buying has revived, slightly.
Indian trade buyers are seeking July and August loading South African cargoes to supply to the cement sector but finding few July cargoes available.
“If you want August tonnes, there is no shortage at all but the very prompt is a bit tight, as it usually is,” one trader said.
Indian end-users are only looking for a few cargoes but the volume of interest appears magnified when a number of traders are chasing the same business.
India has taken a steady monthly spot tonnage from South Africa this year and is likely to increase buying while prices remain at or close to two-year lows, suppliers said.
TRADES
Two August loading South African cargoes traded at $81.65 a tonne, down 25 cents from Wednesday and a fresh two-year low.
PRICES
A July loading South African cargo was bid at $80.25 and offered at $85.00, unchanged on the bid.
A July DES ARA cargo was bid at $82.00 for Colombian only and offered at $83.00 for multi-origin coal including US material, down $1.00 on the offer.
An August DES ARA cargo was bid at $84.90, up 70 cents and earlier offered at $84.80, down nearly $1.00 on the offer. - Reuters