Figure 1
Thermal coal price FOB Newcastle and Richard Bay
Thermal coal future in Europe (API4, the blue line) bounced strongly from its low in the last 4 weeks, massively outperforming spot thermal coal price in Newcastle, Australia (CLSPAUNE, the red line). Our sources in the industry mentioned that thermal coal fundamentals in Europe remains weak as port and power station stockpiles are still at high level, seasonally coal burn is falling due to milder weather, and gas prices are declining. There are, though, some positives that supported European thermal coal price, including 1) Russians suppliers pulling out from the market as they have the highest cash costs, around US$65/t, 2) no supply from the US for the same reason as the Russian, 3) South African supply remains tight because of inland transport constraints, and 4) Colombia has endured a series of strikes for about 3-4 weeks, affecting many producers. Worth highlighting that the US export was quite strong, up by 38% YoY in FY08, but no official data is available of export during 1Q09. Figure 2
Coal inventory at Qinhuangdao
Meanwhile, CLSA China Reality Research (CRR) reported that spot thermal coal prices in Qinhuangdao port in China rose for the second week, up around 1.2% to 2.1% WoW. As inventory declines at the port, CRR hears that key coal producers such as Shenhua (1088 HK) and Datong Group have temporarily halted spot market sales of their coal to give priority to contract clients and this move could support spot prices.
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