SAIL's coking coal asset in Jharia faces uncertainty

The future of SAIL's domestic prime coking coal asset in Jharia coalfield in Jharkhand remains uncertain. The field has estimated reserves of 96.78 million tonnes.

Last year, SAIL had received three technical and commercial bids from prospective mine developers-cum-operators (MDO) for the Tasra coal block, including a part of the contiguous Chasnalla block. However, it is yet to decide on the issue, said sources.

Bids were submitted on or before June 19 last year for the block in Jharkhand's Dhanbad district.

Sources involved in the process, say the delay in taking a decision is intriguing. SAIL had floated tenders several times in the past decade to select a contract miner only to cancel them later.

In the last attempt to rope in an MDO or a contract miner, SAIL had protected its interest in the tender document for the 4 million tonnes a year project.

Apart from the development of the proposed open cast mine, the project included setting up a pithead coal beneficiation plant, rehabilitation and resettlement of people from the proposed mine site and setting up of a 200-300 mw thermal power plant in a joint venture with SAIL.

Though the mine lease area covers 4.5 sq. km or 450 hectares (ha), the proposed project needs surface rights for 900.59 ha.

According to the bid document, the MDO is required to acquire 453.06 ha of privately occupied land as also rehabilitate and resettle some 3,500 families in the proposed project area. Of the total required surface rights, SAIL has already acquired 346.67 ha.

It is also in discussions with the State Government, DVC, and Fertiliser Corporation for acquisition of 102.88 ha, including 20 ha needed for the planned (minimum capacity of 3.5 mt a year) beneficiation unit.

Apart from an approved mine plan, the mining lease is under deemed extension (renewal application is being considered by Jharkhand) and the environmental clearance is in place.

The selected MDO is also to get a detailed project report prepared by CMPDIL.

But, the project operator has to obtain clearance from the Ministry of Environment and Forests for the coal beneficiation plant.

This captive resource exploitation project, for the coking coal-deficient SAIL, is estimated to have 28 years of life including two years for construction.

SAIL had obtained the block from Bharat Coaking Coal Ltd in 1996.

Despite price declines, Peabody forecasts increased Asian Coal Demand

Despite depressed prices for seaborne metallurgical and thermal coal, Peabody Energy expects global coal demand to grow nearly 4% in 2013, and 13% in China and India combined, according to an investor presentation made Wednesday at the company's St. Louis headquarters.

The written portion of the presentation, filed with US Securities and Exchange Commission, notes that first-quarter coal imports to China and India grew 30% and 25%, respectively, partly due to increased use of coal for power generation.

Coal power generation in China and India in the first quarter was up 4% and 9%, respectively, according to the company.

Peabody also expects higher met coal imports in China in 2013, based off a 9% first-quarter increase in Chinese steel production, which the company attributed to pent-up demand after low steel growth in 2012.

But Peabody believes US exports will decline by an estimated 25 million short tons in 2013. The US exported a record 126 million st in 2012.

The presentation did not say where the company expects China and India will source the coal to meet the projected increase in demand.

However, Vic Svec, Peabody's senior vice president of investor relations, said in an email that the company expects "the supply-demand balance will tighten as the year progresses, and countries such as Australia and other Coal Countries as Colombia will continue to benefit from the rising seaborne demand."

Svec also said that believes China's proposed import ban of low heat-value and high-sulfur coals would likely benefit again Colombian -in small portion as production is limited- and Australian as big players producers.

"The Chinese proposals would eliminate lignite imports and likely tighten up higher CV markets, benefitting exporters from countries such as Australia," said Svec in his email.

Peabody forecasts Chinese and Indian imports will reach 480 million metric tons in 2013, of which 81% will be thermal coal, compared with 2012 imports of 425 million mt, of which 81% was thermal coal.

By 2017, the company projects Chinese and Indian imports will reach 655 million mt, of which 76% would be thermal coal, based on urbanization in both countries that will require new coal-fired generation.

The company believes that by 2017, China will build 250 GW of new coal generation and India will add 70 GW.

Peabody earned more than 42% of its first-quarter 2013 revenues of $1.7 billion from its met and thermal mines in Australia, and is targeting increased met volumes in 2013, according to the presentation.

Global met coal prices have fallen considerably since April 1, when the global benchmark for met coal was settled at $172/mt. Platts on Wednesday assessed premium low vol met coal FOB Australia at $137/mt.

The company projects its Australian mines in 2013 will produce 15-16 million st of met coal, 11-12 million st of seaborne thermal coal and 7-8 million st of thermal coal for domestic Australian markets.

First-quarter 2012 revenues from its Powder River Basin and Illinois Basin mines made up 37% and 19%, respectively.

Peabody last month posted a first-quarter 2013 loss of $23 million, but said in its presentation that it is committed to reducing costs and improving its capital efficiency.

The presentation also said the company is targeting production of 180-190 million st in 2013, which is unchanged from the number Peabody reported in its earnings release last month.

Japan's Tepco settles Jul 2013-Jun 2014 coal contract at $89.95/mt FOB Newcastle

Japan's Tokyo Electric Power Company has settled its July 2013-June 2014 thermal coal contract with Australian suppliers at $89.95/mt FOB Newcastle basis 6,322 kcal/kg GAR, a market source familiar with the matter said Wednesday.

The fixed-price deal at $89.95/mt FOB Newcastle for thermal coal with a calorific value of 6,322 kcal/kg GAR, can be compared with $95/mt FOB that Tepco agreed to pay for the April 2013-March 2014 contract for Australian thermal coal earlier this year.

Some market participants had expected the contract to be settled on a floating price basis as the Japanese utility switched to a floating price -- an unknown premium to the globalCOAL Newcastle -- for deliveries in January 2013.

Market participants said the July 2013-June 2014 contract price appeared favorable to Australian thermal coal producers who are currently struggling with spot prices falling to the $70s/mt FOB for Australian 6,300 kcal/kg GAR thermal coal.

"The producers appear to have done well," said one trader in reaction to Tepco's latest contract.

Cargoes of Australian thermal coal with a calorific value of 6,000 kcal/kg NAR, (equivalent to 6,300 kcal/kg GAR) were bid Wednesday in Asian trade at $79.50/mt FOB for loading from Newcastle port in July, while buying interest in September- and October-loading cargoes hovered around $76.50/mt and $76/mt, respectively, he said.

The trader said the Newcastle thermal coal market was beset by chronic oversupply and cited a recent tender from Japanese Joban Joint Power Company seeking coal that was oversubscribed by 20 times. The company received offers for 10 million mt of thermal coal to fill a gap of 600,000 mt in its supply schedule. "There is a glut of coal in the market," he added.

Another trader too described the price settled on by Tepco as good for Australian suppliers as forward derivative prices for Newcastle thermal coal were currently trading at $81.50/mt FOB for the year starting July 1.

Prices at the Newcastle trading hub for thermal coal plunged earlier this week when a 25,000 mt parcel of August-loading Newcastle thermal coal with a calorific value of 6,000 kcal/kg NAR traded at $77.50/mt FOB on Tuesday, and a September-loading parcel of the same size traded at $79.50/mt on Monday on the globalCOAL platform.

Russia to Export more Coal to Asia Pacific

RBTH Asia reported that Russia intends to upgrade its port and railway infrastructure in the Far East in order to boost coal exports to Asia. Experts polled by RBTH Asia have pointed out that coal mining in Russia is more profitable than in Asia. However, an increase in Russian coal exports is hampered by the need to modernize the infrastructure first.

The deficiencies of the transport infrastructure in the Russian Far East result in the  transportation costs make up 60% of the cost of coal.

A senior analyst from the Veles Capital investment company, Mr. Ayrat Khalikov, agrees that the main bottleneck for Russian coal exports to Asia is the capacity of Russian ports.

He said that "There have been numerous instances when trainloads of coal were stuck because the ports were unable to start loading. An increase in coal production envisaged by Russian companies does not match with the current port capacity. It should also be said that the capacity of railways in Russia has also been exhausted."

According to the Russian Energy Ministry, in January to May 2013 coal production in Russia grew by 1.1%, to 142.7 MnT while export grew by 5.2%, to 53.6 MnT. .

In an Energy Ministry estimate released in April, Russian coal supplies to China in 2013 should rise to 20 MnT, against last year's 19.3 MnT. .

In early June, Igor Zyuzin's Mechel Company signed its third this year's long term agreement for coal supplies.

Metallurgical coal miners maintain regional pricing despite China’s ascendancy

Despite the specter of oversupply and a near-continual drop in spot prices in the last two and half years, producers of metallurgical coal have retained the ability to achieve a premium in certain regions when selling spot cargoes.

Together with a general lack of spot liquidity ex-China, this regional pricing is undermining efforts to measure a consistent FOB Australia price, while at the same time growing China imports are creating an ever stronger alternative hub for price discovery.

In the spot market, China has been able to buy at the cheapest price in recent years, while the rest of north Asia, India and Europe typically pay between $2-7/mt higher.

As an example, out of nine spot hard coking coal deals into India, Europe and Asia (ex-China) in May and June 2013, Australian and Canadian miners achieved on average a premium of $5.8/mt compared to cargoes sold to China.

These premia are highly inconsistent, however, with some buyers managing to negotiate “China + $1/mt,” while some only got “China +$12/mt.”

To explain this phenomenon, miners would point to the fact that they have to sell cheaper to China, where they must compete with domestic producers.

China is the world’s largest producer and consumer of met coal. Steelmakers in other regions, meanwhile, are more dependent on seaborne imports, and thus have a weaker hand in negotiations.

Perhaps also explaining the premium, Australian and Canadian coals have become embedded in the coke blends of global steelmakers, while the Chinese are simply price-sensitive, occasional swing buyers.

Seaborne exporters tend to tread with care and avoid offering discounted spot cargoes in regions where they have long-term contract customers.

Traders say that doing so would run the risk of undermining long-term contracts which, since the start of 2013, have been on average $9/mt above spot.

Another factor explaining this ex-China premium is that met coal has in the past been rather opaque and “the market” has traditionally taken its cue from term settlements, in the absence of published spot prices which emerged around 2010. This phenomenon continues in places, and some steel mill procurement managers still refer to the quarterly Asian benchmark or BHP Billiton-Mitsubishi Alliance’s monthly term prices when buying spot.

Other sources have pointed out that regional price differences could have to do with steelmakers’ different evaluation of coals, and could reflect a willingness to pay more for coals which are more critical to their blends.

Another theory is that non-Chinese buyers tend to insist on stricter quality-related penalties in spot contracts, giving the sellers a form of hidden optionality allowing them to offer more competitive prices in China. It is unclear, however, if such factors can explain such large price differences.

In any event, market forces alone have been unable to iron out these regional price differences because when miners sell on an FOB Australia basis to traders, they will typically impose geographic constraints on where the cargoes should go.

Such geographic limitations are not enforceable through contracts, but are often set in gentlemen’s agreements, with the understanding that traders delivering in a “forbidden region” may fall out of favor with the producer.

“The miners have term agreements in places like Japan, Korea, Taiwan and India. They’d be unhappy if we sold spot to them,” an Australian trader explained.

He added that regional pricing was “policed more tightly in a tight market.”

The gap between spot and term metallurgical coal prices has also led to some usually very discreet “backdoor” term agreements, where a miner and a steelmaker agree to make a parallel long-term deal facilitated by a trader at a price below the headline benchmark but higher than spot.

In such deals, all parties benefit somehow as the miner will be able to sell additional volume at a price higher than the spot market, the mill will be able to reliably procure its favored brand of coal at below the usual term price, while the trader will take a cut.

Several such deals are in place for Japanese steelmakers procuring Australian hard coking coal.

Additionally, one-off spot deals are occasionally agreed into Europe or elsewhere in line with China prices, but on condition of absolute discretion, and often via traders.

Newcastle Port's Coal Shipment Fell By 16% Last Week

Worlds biggest coal exporting capacity port, Newcastle Port, shipped 16% less coal as on 17th June as compared to previous report of 11th June from the port.

Newcaslte Port  had shipped 6.4 MnT of coal till 17th June  for the completion of its target to ship 12.6 MnT this month. However as per the actual shipped amount for the month plus projected balance figure is showing 12.02 MnT coal to be shipped this month is 4.6% less from the target.

Last week 24 vessels entered the port for loading coal. Whereas, average waiting time was of 4.4 days. As on 17th June, 7 vessels were loading coal and 2 vessels were waiting. However 40 vessels were expected to arrive.

Australian coal prices also dropped last week owing to weak demand from the market.

SteelMint learned Australia's 6000 NAR Kilo calorific coal was priced at $83.5/MT on FOB basis. Premium hard coking coal (74% Carbon strength after reaction, 20.7% Volatile matter) has reached at $134.25 FOB Australia.

Sea Freight from Australia to India in Supramax vessels ranged between $19-20/Mt and in Capesize vessels ranged around $11-12/MT.