[miningmx.com] — THE price of importing South African coal has fallen to be nearly on par with Chinese domestic rates, but Chinese buyers are not biting and are asking for discounts of another $4 per tonne at least, trade sources said.
Thanks to a correction in freight rates, exports from Richards Bay have narrowed significantly to hover just around $3 a tonne above China’s domestic prices on a landed cost and freight (CFR) basis, a level which could have spurred some buying in the past.
But with summer buying coming to an end and domestic stockpiles swelling, few Chinese buyers are willing to pay more than $125 a tonne (CFR) for standard South African coal with heating value of 6,000 kcal/kg (NAR) – indicating a free-on-board (FOB) price of about $112 a tonne, nearly $5 below the current index.
“It is a risky business for us. Any South African orders we make now are part of our early winter purchases, but it’s hard to say definitely that prices will climb a lot higher in winter,” said a major buyer based in Beijing who asked for anonymity as he was not allowed to speak to the media.
Although coal prices tend to trot higher in winter compared with summer months, Chinese buyers said changing buying patterns have kept prices rangebound for a large part of the year and it was increasingly difficult to predict the market.
“Over the past year, utilities have begun to start stocking up earlier, especially during the seasonal demand lull to prevent a mad scramble during the peak season. So that has flattened out the price curve compared to previous years,” said a second Beijing-based trader.
Chinese steam coal prices at top port Qinhuangdao have climbed only 3% since the peak winter heating demand at the end of last year, although prices have ranged between 725 yuan and 850 yuan per tonne through the seven months this year.
With China’s top trading partner, the United States, showing an unconvincing recovery and No.2 trade partner, the European Union, mired in a debt crisis, uncertainties over the global economic outlook were also preventing many Chinese buyers from taking large risks.
“We’ll wait and see. Domestic supplies aren’t hard to get and Indonesian production is also coming back strongly, so South African may not be too attractive after all,” said a Guangzhou-based trader.
China has imported 1.53 million tonnes of coal from South Africa from January to May this year, down 41.3% from a year ago.
SELL AT DISCOUNT?
Some trade sources said weak demand from Europe and India could prompt some suppliers to sell below the Richards Bay index, whereby spot prices were hovering at $116.32 a tonne and August-loading cargoes at close to $117.
European utilities have ample stockpiles to last through the summer and autumn and have been more active sellers than buyers during the past month, while Indian traders who have switched as far as possible to cheaper Indonesian coal.
“Coal stocks at Richards Bay are higher than normal and I think prices should go lower a bit more. But it seems like a lot of sellers are unwilling to budge,” said a Singapore-based trader.
