Monday, December 15, 2014

Premium metallurgical coal prices nudge a touch higher

The Asia Pacific met coal market started the weak largely steady, though premium prices firmed on a slightly stronger demand outlook in China.

Last week's rally in domestic Chinese steel prices might have supported sentiment, said a steelmaker in East China.

Combined with weak iron ore prices, this uptrend has helped to widen mill margins, the mill source said.

Platts assessed Q235 5.5mm HRC in Shanghai, which has a tight historical correlation with met coal imports, at Yuan 3,050-3,070/mt ($497-500/mt) December 8, including 17% VAT, up Yuan 10/mt from first week of December.

This marks a rise of Yuan 50/mt since the start of this month.

One Shanghai trader stressed the greater appeal for January shipments for Chinese end-users, compared to December or February ones.

Most end-users had already restocked sufficiently for December, while steelmakers avoided buying cargoes loading in February as it would be within weeks of the Lunar New Year holidays, the trading source explained.

However, Chinese end-users were still cautious, with at least two purchasing managers from North China mills reluctant to fix spot deals as there was still uncertainty over the time frame of scrapping the 3% coking coal import tariff.

Platts assessed Australian premium low-vol HCC 25 cents higher from December 5 at $122.25/mt CFR China December 8, while tier-two HCC prices were assessed steady at $112.50/mt CFR China.

PCI prices soften a touch

Bids in the PCI segment were weaker.

Richer spot supply for January as well as cheaper domestic coals could put a stop to further price gains, one large steelmaker said.

The mill source said his procurement share of PCI imports had dropped from 70% in October to 30% of total consumption last month.

Both low-vol and mid-tier PCI prices fell 25 cents from first week of December at $101.75/mt and $94.75/mt CFR China, respectively.

At the Dalian Commodity Exchange, the most active May contract lost Yuan 4/mt from December 5 to close at Yuan 759/mt, while the May coke contract declined Yuan 7/mt to Yuan 1,032/mt compared with first week of December.

Q1 term talks set to begin

Elsewhere, Japanese quarterly contract negotiations were said to be starting in earnest this week following higher-level discussions last week, said a Japanese mill source.

For hard coking coal, a rollover (at $119/mt FOB) would be "the best outcome for both parties," the mill source said.

However, talk of BMA monthly contract offers at $116-118/mt FOB for January was undermining the likelihood of a rollover, he added.

The tight $1/mt spread between premium low-vol Peak Downs and premium mid-vol Goonyella -- down from $3-4/mt typically -- in the monthly offer could impact the price discussions.

The spread has narrowed in recent months as supply of premium mid-vol has tightened mostly due to poor performance at Anglo American's Moranbah North mine, participants said.

As a possible consequence, spot valuations for such coals outside China have also firmed.

A deal was done December 8 for a 40,000 mt cargo of straight Australian premium mid-vol with below 70% CSR, at $116.50/mt FOB Australia, for December laycan.

This was within 50 cents of two other deals reported concluded within the last five days.

Thursday, December 11, 2014

Tighter coal market in sight – Glencore

JOHANNESBURG (miningweekly.com) – A natural tightening of the coal market as a result of demand catching up with supply will happen in the near future, says Glencore CoalCEO Peter Freyberg.
Freyberg, who was addressing Glencore’s investor day, made the point that coal is not in the same over-supply situation as iron-ore and that thermal coal is heading towards a supply deficit.
A graphic of consensus price forecasts, displayed during the investor day presentation, had coal in positive price territory in late 2015.
The London-, Hong- Kong- and Johannesburg-listed mining and marketing company has an installed capacity on a managed basis of close to 200-million tons of coal a year, across 22 mining complexes in three countries and backed by marketing offices in 19 countries.
Currently the largest exporter of coal from South Africa, Glencore Coal occupies premier volume positions in both Australia and Colombia.
It has cut $1.8-billion out of its costs since 2012 and its new production is firmly in the first quartile of costs, including its below-budget R8-billion Tweefontein Optimisation Project in South Africa, which is being commissioned six months ahead of schedule.
Glencore Coal achieved an earnings before interest, taxes, depreciation and amortisation (Ebitda) of 26% in the first half of the year and claims to have the best Ebitda of all the multi-continent diversified majors with a mix of thermal and coking coal.
Interestingly, Freyberg describes the company’s decision to stop producing in Australia for three weeks as pro-employee and union-backed.
Simultaneously, he reports that an opportunity exists to earn real export parities in Australia’s domestic market, where a large part of the industry is saddled with take-or-pay logistical obligations.
The resultant tightening of supply to domestic markets is allowing Glencore to create value by switching in and out of Australia’s domestic market as a result of its comparatively low take-or-pay exposure.
“Similarly, in South Africa, we're going to see more of that sort of behaviour as the market evolves,” says Freyberg.
The company has also succeeded in unlocking hundreds of millions of dollars a year in the synergies created through the blending of different kinds of coal.
“However, there are cycles and the industry is at a pretty bad time right now in terms of where the market is.
“Fortunately, we’re sitting at a pretty favourable part of the price curve with an average 26% margin in the first half and, with mines being wasting assets, we’re consuming them pretty rapidly at the moment as an industry, causing supply to drop off.
“That natural tightening, where demand actually catches up with supply, will happen in the near future,” says Freyberg, who adds that coal remains fundamental to Asian energy demand.
The further 255 GW of coal-fired generation that will be built in Asia by 2025 will require 800-million tons of coal a year, against the background of growing urbanisation coupled to the coal power being substantially more cost effective.
In India, for example, a dollar invested in coal-fired power generation delivers six times more energy than solar and four times more capacity than nuclear.
“When you go to the busbar, the actual cost of the coal energy is half that of solar and nuclear,” Freyberg points out.
But mine-expansion challenges remain and Freyberg outlines how community and economic issues have to be understood and open and honest engagement has to take place with communities to secure mining licences.
A case in point is the effort that Glencore went to to obtain a mining permit at Bulga, in Australia.
“You have to have a pretty good plan in place and you have to have a track record with the community to get through,” he says.
The company allows some of the 540 000 ha that it occupies globally to be used by host communities for agriculture, for example.
When Glencore acquired 13 mines in South Africa 14 years ago, the mines’ safety records were among the worst in the industry, which the company has succeeded in turning around.
Pictures were shown to investors of South African employees having pre-shift safety discussions at Tweefontein, where the focus on safety went hand-in-glove with the mine’s continuous miner team setting new output records in two seams.

Capital misallocation lowering commodity prices – Glencore

JOHANNESBURG (miningweekly.com) – Capital misallocation, not a lack of demand, remained the key factor in the current low level of several commodity prices, Glencore CEO Ivan Glasenberg said on Wednesday.


Highlighting the need to differentiate by commodity in allocating capital, Glasenberg said at the company’s investor day in London that the commodity prices that had fallen had come off because of over supply.
He displayed a graphic that indicated a significant misallocation of capital in iron-ore in particular and defended his company against accusations that it was itself guilty of increasing coal supply, arguing that the addition of 18-million tons of coal into the seaborne coal market of 950-million tons a year was insufficient to lower the price.
He said that the London-, Hong Kong- and Johannesburg-listed company was dead against supplying in a manner that cannibalised businesses and had stopped Australian coal production for three weeks to avoid being forced to sell coal at poor margins.
He cautioned against viewing the internal rates of return (IRRs) of expansions in isolation and urged companies to view IRRs holistically and avoid being lured by their false attractiveness when viewed alone.
While it was important to cut costs and introduce technical expertise to reduce costs, setting out to go down the cost curve by increasing supply could have the backfiring effect of lowering prices overall.
“We know what happened in oil with the increased supply of shale oil, and we know what happened in iron-ore.
“But we also know that in commodities where there have not been big increases in supply, prices have gone up,” he said, displaying a graphic, which showed that the prices of nickel, aluminium and zinc had risen in the year to date and emphasised that differentiation by commodity was critically important.
He nailed the company’s colours to the multicommodity mast and reiterated the defence against falling prices of having a marketing role in addition to mining.
Commodities singled out for particular favour currently were copper, where the so-called surplus was proving elusive; zinc, where millions of tons of additional supply would be needed in the next half decade to balance the market; nickel, where the market would be balanced next year and fall into substantial deficit from 2018; and coal, where some high-cost supply was shutting and new investment was being delayed.
He said there was a market rebalancing in coal, which he reiterated would have a good future. A graphic of consensus price forecasts showed coal in positive price territory in 2015.
With Glencore’s long-life ferrochrome, copper, thermal coal, zinc and nickel assets in first quartile cost positions, it was a misnomer to say that the company did not have tier-one assets.
It was the only company without declining copper grades and had a list of brownfield growth options in copper, zinc, nickel, coal and oil, on which the button could be pushed beyond 2016.
“But these are not assets that will add new tons into the market and cannibalise the price and our existing operations. They’re small and they’re not going to move the needle.”
As the company’s brownfield oil option in Chad was on land, it could be kept shut until the oil price moved more in the company’s favour.
“That’s how we operate as Glencore. We do think that our trading skills stop us from increasing tons that are not going to give us a return,” Glasenberg added.
The company’s announced sustaining capital expenditure of $4-billion a year is expected to fall closer to $3.5-billion a year by 2017.
Continued optimisation of the asset portfolio is reportedly underpinned by target return on equity (RoE) of 20% to 25% for incremental mining capital and a sustainable marketing RoE of 40% to 65%.
The balance sheet structure for equity returns, liquidity and cost of capital is said to be optimal and the company’s Baa/BBB credit rating target keeps funding costs optimal.
The owner-managed concern has pledged to continue to return excess cash to shareholders and to complete 70% of its $1-billion equity buy-back by year-end.

Tuesday, November 18, 2014

Outlook divided in Asian met coal spot market on abolition of Chinese tax

The Asian seaborne metallurgical coal spot market on Monday November 17 was divided on the removal of China’s import tax on coal under the country’s free-trade agreement with Australia.

After officially concluding its negotiations with Australia on the pact on Monday, China has agreed to lower the duties it recently started imposing on imports of coking coal and thermal coal. 

The tariffs on coking coal will be removed "on day one" while that on thermal coal will be phased out over two years, according to Australian government.
The removal of the import tax will improve sentiment, especially in the seaborne spot market, a trader said.


However, other market participants had a more tempered view of the free-trade agreement.


"The import tax relief is definitely good news for traders, but without a detailed schedule, its effect is difficult to say," a trader source. The market is still digesting the tax implemented in mid-October, so it will take time for the latest policy to take effect once it is finally introduced, the source added.

 
The import tax relief on Australian coal goes in the opposite direction of a rumoured cut in China's export tax on domestic coal, which is seen as a bid to ease oversupply in the domestic market, an end-user source said. 


Steel First's cfr Jingtang premium hard coking coal index edged up by $0.19 per tonne to $122.31 per tonne on Monday, while the hard coking coal index lost $0.56 per tonne to $111.15 per tonne.


The fob Australia indices were both unchanged, at $112.79 per tonne for premium hard coking coal and $100.52 per tonne for hard coking coal.


On the Dalian Commodity Exchange, the most-traded May coking coal contract closed at 773 yuan ($126) per tonne on Monday, up 4 yuan ($1) from last Friday's close of 769 yuan ($125) per tonne. The most-traded May coke contract closed 1 yuan ($0.20) higher, at 1,065 yuan ($173) per tonne.

China’s coking coal imports to halve by 2020, CLSA says

Chinese imports of coking coal are forecast to decline to just 30 million tpy by 2020 from 60-70 million tpy now, according to equity broker CLSA.

This is due to the broker's expectation that the country's steel consumption will peak before the end of this decade as urbanisation slows, and infrastructure and construction demand start to decline. In addition, ex-China demand will draw supply away from the world's second-largest economy, CLSA said in a recent research note.

China is the largest importer of seaborne coking coal and has been the clearing market as its steel production grows. During the first nine months of this year, the country imported 44.34 million tonnes of coking coal, according to Chinese customs. 


In 2013 as a whole, China imported 75.39 million tonnes of the steelmaking raw material. 


But CLSA argues that "in some respects the country can be viewed as a net exporter given the volume of coking coal exported in the form of coke and steel".


China exported a total of 73.89 million tonnes of finished steel during January-October, up 42% year-on-year, while its coke exports amounted to 6.56 million tonnes during the first ten months of this year, more than double the volume seen in the corresponding period last year.


CLSA forecast the quarterly benchmark for hard coking coal to stand at $115 per tonne fob Australia for the first quarter of next year and $120 per tonne for the second quarter next year. These are down from its previous forecast of $130 per tonne.


"However, we do believe prices will not worsen from here, as there has been a significant destocking in north Asian markets in 2014, and supply discipline is beginning to take effect with many mine closures announced this year, the benefits of which should be felt by the market in 2015," CLSA said.


It forecast the hard coking coal quarterly benchmark to average at $123 per tonne fob Australia next year, $138 per tonne in 2016 and $148 per tonne if 2017.


"As supply cuts are finally being seen, the market should gradually be able to move away from relying on Chinese marginal buying," CLSA said.


India is expected to be the top importer of coking coal by 2018, the broker said. However, it will take time for the country to drive a strong recovery in prices as it "first needs to absorb the surplus of seaborne coal which is currently sold into China". 


CLSA forecast India's share of global imports of coking coal to rise to 24% by 2020 from 14% this year.

Tuesday, October 28, 2014

Demand outlook split in Asian seaborne met coal market ahead of talks

The upcoming Asia-Pacific Economic Cooperation (Apec) summit in Beijing has led to a divergence in the demand outlook for seaborne metallurgical coal.

The Chinese government has imposed output restrictions on steel mills and coke producers in the capital and its surrounding areas ahead of the talks scheduled for November 5-11 in a bid to cut air pollution.

While some expect the restrictions to have some impact on demand for seaborne met coal, others are not anticipating any change.

"The impact will just be for the short term. Also, Chinese domestic met coal production in the north could see some decline as well so I don't expect to see much differences in prices," a trading source said on Tuesday October 28.

A mill source said that the government has issued instructions to steelmakers to slow down the rate of their coke production. The mill has yet to comply, he said.

State-owned mill will have no choice but to adhere to these instructions however, the source said, and this could have some effect on demand for seaborne coking coal.

Pricing remains the dominant factor that affects his purchasing plans. "I have enough stock now so I'm not in a rush to make any purchases, but if prices are okay, I will still buy," he said.

CFR Jingtang premium hard coking coal index was calcuated at $121.12 per tonne on Tuesday, down $0.06 from Monday. The CFR Jingtang hard coking coal index also fell $0.87 to $110.19 per tonne.

The fob Australia indices were unchanged at $111.86 per tonne for premium hard coking coal and $100.28 per tonne for hard coking coal.

Separately, data released by China Iron & Steel Assn (Cisa) on Tuesday showed that its member mills produced an average of 1.7629 million tpd of crude steel during the second ten days of October, down 2.25% from the preceding period.

Cisa members are mainly medium-sized and large steelmakers and account for around 80% of the country's total steel output.

On the Dalian Commodity Exchange, the most-traded January coking coal contract closed at 774 yuan ($126) per tonne on Tuesday, up slightly from Monday's close of 773 yuan ($126) per tonne. The most-traded January coke contract closed lower at 1,087 yuan ($177) per tonne, compared with the previous day's close of 1,096 yuan ($179) per tonne.


The yuan prices are the equivalent of cfr prices plus 17% VAT and port charges of about 35 yuan ($6) per tonne.

Monday, September 29, 2014

Cliffs, Atlas, BHP cut jobs as price crash hits Australian miners

Australian miners are slashing jobs in response to critically low raw materials prices, with iron ore miners and coal producers alike making severe cuts in headcounts to adjust to the new pricing climate.

Iron ore producers Cliffs Natural Resources, Atlas Iron Ore and BHP Billiton have all been reported to have reduced employee complements at their Australian iron ore operations in the past month.

Cliffs contractor BGC, which provides mining and civil services to the US iron ore producer, has cut a proportion of its 950-strong workforce at Cliffs' Koolyanobbing mine in recent weeks.

"Through productivity and efficiency improvements at Cliffs' Koolyanobbing mine, our labour contractor BGC has been instrumental in streamlining and best aligning our resources for the operation," a Cliffs spokeswoman said.

Cliffs did not confirm the number of jobs cut at the mine, but said that the reduction in headcount would not affect targeted sales or production volumes from its Asia Pacific Iron Ore business segment.

Benchmark prices
Benchmark 62% Fe iron ore prices have almost halved since the beginning of the year, dropping from more than $130 per tonne cfr China in January 2014 to less than $78 per tonne on Monday September 29.

Prices for 58% iron ore have fallen by 43% from the start of the year, from $118.73 per tonne to Metal Bulletin's index calculation on September 29 of $67.90 per tonne cfr China.

The Australian press has reported that Atlas Iron, a mid-tier producer of 58% Fe grade iron ore, also cut jobs, with around 40-70 permanent roles being affected.

Atlas also uses contractor BGC, which is reported to have eliminated about 50 jobs from Atlas Iron's Wodgina iron ore mine.

Neither Atlas nor BGC responded to requests for comment at the time of publication.

The latest round of job cuts in Australia's iron ore sector follows a paring down of logistics staff at BHP Billiton's Port Hedland operations.

The mining major imposed job cuts at the iron ore terminal in Western Australia earlier this month in an attempt to slash costs, but did not disclose how many positions would be affected.

Coking coal cuts
While coking coal prices have held relatively steady over the past six months - in comparison with the steady decline in iron ore prices - producers continue to scale back operations, citing the poor outlook for the steelmaking raw material.

Last week, coking coal mining major BHP Billiton Mitsubishi Alliance (BMA) announced 700 jobs cuts across its coking coal operations in Australia.

BMA, the largest employer in Queensland, said that the job cuts were part of a continuing review of its operations. The cuts represent 8% of the miner's Queensland staff.

Alpha Natural Resources idles mines, cuts jobs amid coal weakness

US coking coal producer Alpha Natural Resources has idled mines across three of its coal businesses, eliminating hundreds of jobs.

Independence Coal's Twilight mine and Pioneer Fuel's Ewing Fork 1 mine, both located in the state of West Virginia, will be idled immediately, Alpha said on Friday September 26.

The two mines, which produced a combined total of 660,000 tonnes of coking coal in the first six months of 2014, will be maintained to allow for a restart of operations, should market conditions and coal demand improve.

Almost 200 jobs across the two mines will be lost.

Alpha affiliate Marfork Coal will idle the Marsh Fork mine and eliminate 68 jobs across its operations. Marfork shipped 100,000 tonnes of coking coal in the first half of 2014.

Alpha said that the mines were being idled due to sustained weak market conditions, fundamental oversupply, and US government regulations challenging the central Appalachian mining industry.

"Prices for metallurgical coal used to make steel have remained depressed throughout the year, reflective of oversupplied markets," Alpha said.

The miner joins a growing number of coking coal producers retrenching operations amid persistently low prices.

Vale announced on Monday that it planned to idle its Isaac Plains mine in Australia, a 50:50 joint venture with Japan's Sumitomo.

And last week, coking coal mining major BHP Billiton Mitsubishi Alliance (BMA) announced 700 jobs cuts across its coking coal operations in Australia.

Premium hard coking coal index fob Australia's DBCT port has dropped from more than $130 per tonne at the beginning of 2014 to about $113 per tonne at the end of September.

Friday, September 26, 2014

Asian seaborne met coal market stable on weak demand

The Asian seaborne metallurgical coal spot market was largely stable on Tuesday September 16 as demand remained sluggish.

Top Australian brands were heard traded at $121-125 per tonne cfr China, while lower-rank premium hard coking coal was changing hands at about $115 per tonne.

For second-tier hard coking coals, few materials were available in the market at the moment.

CFR Jingtang premium hard coking coal was calculated at $122.26 per tonne, up $0.55 on the day. The cfr Jingtang hard coking coal index was up $0.27 to $107.42 per tonne.

The fob Australia premium hard coking coal index was up $0.01 to $111.94 per tonne, while the fob Australia hard coking coal index went up $1.88 to $98.52 per tonne.

"There's no sign as of yet of any restocking activity from buyers for the winter," a trading source told Steel First. The trader added that he was only sourcing material from suppliers when there was firm customer demand to minimise risks.

Several mill sources said they have no immediate demand for material, with one suggesting he would not actively seek cargoes until the end of the year.

In Japan, no numbers have been tabled for the fourth-quarter benchmark, but sources said a settlement is expected sometime next week, when Australian miners visit the country.

While a roll-over is widely expected, a trading source said the current market is "not healthy" and more mines would be shut if the $120-per-tonne benchmark continues.

In other news, China will ban the import and domestic sale of coal with high ash and sulphur content from 2015 onwards in a bid to tackle its pollution woes. However, as coking coal is largely spared from the new ruling, the impact on the market has been minimal.

On the Dalian Commodity Exchange, the most-traded January coking coal futures contract closed at 788 yuan ($128) per tonne on Tuesday, down from Monday's close of 794 yuan ($129) per tonne.

The most-traded January coke contract also closed lower, at 1,082 yuan ($176) per tonne, than the previous trading day's close of 1,091 yuan ($177) per tonne.

The yuan prices are the equivalent of cfr prices plus 17% VAT and port charges of about 35 yuan ($6) per tone.

Thursday, September 25, 2014

Asian coking coal prices stable as raw material falls stifle gains

Seaborne Asian coking coal prices held relatively steady on Tuesday September 23, with any buying prompted by low port inventories muted by further falls in the iron ore and steel markets.

Physical iron ore prices were expected to drop to new lows of less than $80 per tonne on Tuesday, driven down by oversupply and a slowdown in Chinese demand growth.

Traders speaking to Steel First said that although the outlook for coking coals, especially pulverized coal injection (PCI), was more positive than it had been for several weeks, the fundamental weakness across the raw materials complex was weighing on any price upside.

"It's a really mixed bag," a trader commented. "Although there is a bit more demand from the traditional markets such as Japan and India, China is still a mess, and that means that any possible gains we might make could easily be cancelled out."

Recent gains in Chinese coking coal port stock prices, reported to have increased by 20 yuan ($3.25) per tonne in the past week, could be due to restocking ahead of China's week-long National Day festival at the beginning of October, a producer said.

Some supply tightness was reported in the second-tier hard coking coal market, as a number of Australian producers on the North Coast railway line linking mines in the region to Gladstone port were affected by a derailment at the end of last week, sources said.

Mines on the line include Kestrel, Gregory, Lake Vermont, Curragh and Blackwater.

CFR Jingtang premium hard coking coal index was calculated at $122.96 per tonne on Tuesday, down by $0.20 from Monday's level.

The cfr Jingtang hard coking coal index was up by $0.79 at $108.83 per tonne.

The fob Australia premium hard coking coal index rose by $1.56 to $113.54 per tonne, while the fob Australia hard coking coal index was up by $0.21 at $98.02 per tonne.

On the Dalian Commodity Exchange, the most-traded January coking coal futures contract closed at 784 yuan ($127) per tonne on Tuesday, up from Monday's close of 771 yuan ($125) per tonne.

The most-traded January coke contract also closed up at 1,066 yuan ($173) per tonne, compared with the previous trading day's close of 1,049 yuan ($171) per tonne.

The yuan prices are the equivalent of cfr prices plus 17% VAT and port charges of about 35 yuan ($6) per tonne.