China makes rare purchase of U.S. coal

SHANGHAI/LONDON, Sept 16 (Reuters) - A Chinese importer this week bought a capesize prompt cargo of U.S. low energy-content thermal coal from trader Gunvor, sources familiar with the deal said on Friday.

 

The coal has an energy content of 4,900 kc/kg NAR and will be shipped in October. It is not Coal Valley mined material but a number of U.S. producers and traders buying from them are shipping coking and thermal coal of various grades from Ridley.

 

Capesize freight from Ridley to China is around $13.

 

The price achieved was a few dollars above the spot price for Indonesian sub-bituminous coal, which reflects the higher energy content, they said.

 

"It was a good deal and shows Asia does need coal -- there's very limited export capacity available on the U.S. West Coast, Ridley has the only capacity available," one source said.

 

"The coal is being shipped in capes and it's a good alternative to Indonesian sub-bituminous, low sulphur, fairly low volatiles and none of the Indonesian logistical challenges," he added.

 

There will not be large tonnages of this coal available from Ridley because capacity is limited even there, although less than at other West Coast ports, but a few more cargoes are likely to become available to the Asian market while China is willing to pay high fixed prices, the sources said.

 

This coal could equally go to South Korea or Taiwan, they said.

 

"Every tonne of coal sold in the world right now is being priced on a CIF China netback -- that's what people have in mind because where else is it going to go?" said another Pacific-based trader familiar with the Chinese market.

 

China has bought abundant quantities of Indonesian sub-bituminous coal with an energy content not much above 3,000 kc/kg NAR but has during the past few months been an active buyer of South African and Australian coal to blend with sub-bituminous.

 

"Some Chinese buyers may pay slightly more for U.S. steam coal because they have a lower volatility index, which makes it less vulnerable to spontaneous combustion that is a problem associated with Indonesia's sub-bituminous coal," said a trader who does not deal in U.S. thermal coal.

 

"The longer delivery time could also be an attraction, since domestic and international prices would likely have risen by then."

 

It takes approximately 20 days for a vessel to travel from the Canadian west-coast port to southern China, around the same time as shipping coal from Australia's Newcastle port.

 

Even though China has begun to import coking coal from the United States and Canada, it rarely buys thermal coal from so far afield due to high freight costs.

 

While customs data show China has imported about 418,000 tonnes of non-coking coal from the U.S. in the first seven months of the year, traders said the bulk was semi-soft and Pulverized Coal Injection (PCI) coal.

 

Several traders said China last imported U.S. steam coal in January this year, when a surge in winter heating demand and a supply crunch drew buyers to turn to western markets for supplies.

 

WINTER BUYING HEATS UP

 

With the winter heating season just a couple of months away, Chinese importers have re-emerged in the seaborne market after nearly a two-month lull.

 

While most of the recent trades have centred around sub-bituminous material from Indonesia and off-specification coal from Australia and South Africa, some Chinese buyers have begun to pay for standard grade coal from Western markets.

 

China imported over 1.5 million tonnes of South African coal in August and 1.3 million in July - some of this was below standard grade RB1 but the statistics show that a substantial flow was going into China for at least two months at the same time as Chinese buyers were insisting that South African was too expensive .

 

Two November arrival capesize cargoes of standard South African coal were sold to China this week at $131.00 a tonne CIF, the seller said on Thursday.

 

Although those deals represent a free-on-board price of around $113 after freight deductions , industry sources said the higher price ceiling represents buyers' growing bullishness about domestic prices.

 

Very prompt South African prices have come under significant downward pressure during the past week. An October loading cargo traded on Friday at $111.50 a tonne.

 

It makes no sense to look at index prices which reflect the next 90 days because the front month looks extremely weak and it is these cargoes which can be spun round and sold to China whereas the following two months' prices are holding far steadier, traders said.

 

After two months of steady decline, Chinese thermal coal prices rose for the second week as the Daqin railway shuts down for maintenance. Benchmark thermal coal prices averaged 829 yuan a tonne this week, up 0.4 percent from a month ago.

 

Delivered prices of NAR 6,000 kcal/kg coal to south China in the fourth quarter have also risen to as high as $135 a tonne on the back of rising freight costs in the domestic market.