“Newcastle spot steam coal prices fell to US$50.50/t FOB in mid October, down US$4.50/t from a month earlier. Conversely, Richards Bay prices increased over the same timeframe to US$59.50, a rise of US$1.50,” Henderson said.
The gap between Richards Bay and Newcastle spot prices has increased to the point where European consumers can now buy coal from Australia at the same delivered cost as South African coal. This leaves little scope for the Richards Bay and Newcastle spot prices to continue to move in opposite directions.
It is uncertain what direction the market will take - whether falling Pacific Rim spot prices drag down Atlantic spot prices, or rising Atlantic spot prices drag up Pacific spot prices. Henderson did not place a bet either way but said the direction of spot prices swings on quite small changes in steam coal supply and demand, which are in turn influenced by acts of nature such as early winter temperatures in Europe and the timing and the severity of the onset of the Indonesian wet season.
“Perhaps the best bet is that spot prices in both hemispheres will track fairly flat, at near current levels, for the rest of the year,” he said.
Spot sales are likely to dry up at the start of the Japanese financial year 2005 negotiating season with coal exporters hoping to sustain prices above US$50/t. Henderson said Centennial was understood to have recently completed a transaction with a Japanese utility at a little above US$50/t FOB.
Energy Economics’ long-standing forecast for JFY 2005 contract prices remains unchanged at US$50/t.
Forecast prices for coking coal have been increased to US$79/t on the back of continued strength in coking coal markets.
Despite a surge in Australian metallurgical coal exports in August US coking coal prices reportedly continue to rise to new records. The August export surge pushed the limits of Australia’s current port and rail capacity which is only expected to be expanded by early 2006.
“So the scene is set for a major increase in hard coking coal contract prices next year,” Henderson said.