South African coal price surge, while others languish, is troubling: Russell

business.financialpost.com Price,  International 2019-12-05 17:16:27

Coal prices around the world are gently sliding as demand from top importers such as China, India and even Europe remains subdued amid a so far mild northern winter. However, there is one exception.


South African coal export prices at Richards Bay have surged in recent months, defying market fundamentals and seemingly without logical explanation.


It's clear that the movements for South African coal are wildly out of step with what's going on in the other major regions, according to some price benchmarks.


There is no obvious fundamental reason why this should be the case.


There is neither supply shock for exports from Richards Bay, or a sudden surge in demand for either South African coal specifically, or coal from other exporters of a similar quality.


Richards Bay exports were 6.08 million tonnes in November, according to vessel-tracking and port data compiled by Refinitiv, down slightly from 6.89 million tonnes in October.


However, it's worth noting that October was the best month since December last year and November's exports were the fourth-highest for any month this year.


The bulk of South Africa's coal exports head to Asia, with India ranking as the biggest buyer.


India's imports of coal from all countries did tick up in November to 16.36 million tonnes from 14.78 million tonnes in October.


But the increase wasn't driven by additional demand for South African coal, with India's imports from Richards Bay coming in at 2.99 million tonnes in November, up slightly from 2.69 million in October.


Trading play


If fundamentals can be ruled out as behind the increase in South African coal prices, the explanation most likely lies in trading tactics being used by market participants.


The motivation is likely to be to create arbitrage opportunities between physical and paper markets, or perhaps also to influence prices linked to longer-term contract negotiations.


While this may lead to winning some short-term profits, it risks damaging the longer-term integrity of the market.


There is little chance that buyers of South African coal across South Asia will accept paying a substantially higher price than what they could pay for similar quality Australian coal.


If the Richards Bay price continues to deviate from other prices, buyers will be reluctant to purchase South African cargoes, or demand a discount mechanism, or a switch to alternative pricing.


If an index price loses credibility or trustworthiness, it ceases to be of much use to the industry.


This is by no means a criticism of the methodology or integrity of compiling the indexes, which have robust procedures and checks in place.


If prices being offered and traded are genuine, there is little the price reporting agencies can do, especially if some players withdraw to the sidelines out of fear of taking losses, or a reduction in the liquidity in the market.


Overall, apart from possible short-term profits, there seems to be nothing to be gained by having one global coal price benchmark out of whack with the others.


It serves only to make coal an unattractive financial market, something an industry already under siege for its role in climate change would be best advised to avoid.


(Writing by Wenxin Wu  Editing by Alex Guo)
For any questions, please contact us by inquiry@fwenergy.com or +86-351-7219322.

Share this article
Connect with us

Editor's Pick

1 Weekly China coal market news summary (Mar 25-Mar 29) 2024-03-29

China's domestic thermal coal prices slide on growing bearish sentimentChina's portside thermal coal prices continued the moderate decline on March 28, owing to an excess of supply coupled with weaken

2 Weekly global coal market news summary (Mar 25-Mar 29) 2024-03-29

Newcastle thermal coal prices soar as India, Vietnam ramp up importsNewcastle thermal coal futures extended the uptick for three consecutive trading days, driven by increased imports from India and Vi

3 Germany's hard coal imports fall 25.8% on yr 2024-03-29

Germany imported 2.40 million tonnes of hard coal in January 2024, falling 25.80% from the year-ago level, according to preliminary data from German Statistics Bureau.The imports, however, were 8.33%

4 Vietnam Feb coal output hit 5-yr low 2024-03-29

Vietnam's coal production in February fell substantially to a new low since March 2019, latest customs data showed.The country produced 3.03 million tonnes of coal in February, slumping 21.23% from 3.

5 Yankuang Energy 2023 net profit down 39.62% YoY to 20.14 bln yuan 2024-03-29

Yankuang Energy Group Co., Ltd., a major state-owned mining group in China, earned a net profit of 20.14 billion yuan ($2.79 billion) in 2023, slumping 39.62% from last year, according to the company'

6 China futures market updates at close (Mar 29) 2024-03-29

Check out latest updates on the Chinese futures market for coking coal, coke, iron ore and others at close.

7 Indonesian thermal coal prices start to fall; Australian coal demand emerges 2024-03-29

Indonesian thermal coal prices began to fall notably this week as demand retreated from Chinese buyers, who took a backseat in response to the continued price declines in the Chinese domestic market.S

8 China Coal Daily Track (Mar 29) 2024-03-29

Thermal coalProduction area Thermal coal prices edged up in major producing regions, with some grades rising 5-10 yuan/t. This was mainly attributed to a periodical wave of restocking activity, leadin

9 CISA proposes steel mills to reduce production amid supply-demand imbalance 2024-03-29

China Iron and Steel Association (CISA) called for production controls at steel mills in response to a lacklustre steel market characterized by high output, cost and stocks yet low demand, prices and

10 China's major coal power producer returns to profit, yet challenges persist 2024-03-29

Huaneng Power International, Inc., one of leading listed coal-fired power producers in China, recorded a profit last year after losing money for two years.In 2023, the company recorded operating reven

Most Read Articles

1 China futures market updates at close (Mar 26) 2024-03-26

Check out latest updates on the Chinese futures market for coking coal, coke, iron ore and others at close.

2 Shanxi faces economic pressure as coal production and sales slump 2024-03-26

Northern China's Shanxi province is grappling with economic challenges in the first quarter of this year, as its pivotal coal industry experiences a notable decline in production and sales.At a govern

3 Mongolian coking coal prices in mixed trends; China's market improves 2024-03-26

Mongolian coking coal prices posted mixed trends at the border crossing Ganqimaodu on the China's side, a price pattern different from previously continuous downturn, as demand from Chinese buyers par

4 Japan Feb crude steel output down 3.8% MoM 2024-03-27

Japan produced 6.99 million tonnes of crude steel in February, falling 3.8% month on month (MoM) yet up 1.1% year on year (YoY), according to data released by the Japan Iron and Steel Federation.The o

5 Inner Mongolia sets slightly higher coal output target in 2024 2024-03-28

Northern China's Inner Mongolia aims to produce 1.22 billion tonnes or so of coal this year, said Inner Mongolia's energy bureau.To achieve this target, the region plans to keep the total production c

6 China met coal market in figures (Mar 28) 2024-03-28

China coking coal, met coke and steel market key figures in focus.

7 China Coal Daily Track (Mar 26) 2024-03-26

Thermal coalProduction area Mine-mouth thermal coal prices were mixed. More coal trucks were arriving at mines with premium grades, pushing up prices by 5-10 yuan/t. But these mines saw no queues of t

8 China's coal mining and washing industry profits down 36.8% YoY in Jan-Feb 2024-03-28

Profits in China's coal mining and washing industry totaled 95.48 billion yuan ($13.2 billion) in January-February, down 36.8% from a year earlier, according to data from the National Bureau of Statis

9 Newcastle coal prices rebound on Vietnam's buying spree, Baltimore bridge collapse 2024-03-27

Newcastle thermal coal futures continued to strengthen in the first two trading days of this week, driven by strong purchases from Vietnam, and the bridge collapse in Baltimore that added to supply co

10 China thermal coal market in figures (Mar 27) 2024-03-27

China thermal coal market key figures in focus. The latest data for thermal coal prices, stocks, shipments in major production areas, transfer ports and most followed downstream sector data.