US thermal coal shipped from the Pacific Ocean-facing Westshore coal terminal in Vancouver, Canada could be setting sail for South Korea in the next few months to pose a direct challenge to Indonesian shipments, market sources said Tuesday.
The news emerged as S&P Global Platts published its first price assessment for its new Northeast Asia Thermal Coal price, or NEAT Coal index, which came out at $83/mt on a CFR Kinuura, Japan basis, at the close of the Asia trading session Tuesday.
Korean utilities are waiting for president-elect Donald Trump to take office on January 20 before they start talks with US thermal coal shippers on export opportunities in the South Korean market, said one market source in Korea who was familiar with the subject.
Several South Korean power utilities are understood to be in the process of finalizing a joint purchase tender specifically for US thermal coal, possibly to cover the April-June arrival period, sources said.
Shipments of US thermal coal to Korea could benefit from a 2012 free-trade agreement between Seoul and Washington that could provide added impetus for tariff-free seaborne trade between the two countries, one source stated.
Government officials in Seoul are set to provide some guidance to the country's power utilities on US thermal coal imports after Trump's Inauguration Day, said the source in Korea.
Powder River Basin thermal coal from the US state of Wyoming, including from Cloud Peak Energy which ships through Westshore terminal, is targeting the Asia seaborne market.
Some US 4,800-5,000 kcal/kg NAR thermal coal ex-Westshore terminal was reportedly offered to South Korean buyers last month at a delivered price of around $80/mt CFR, on a 6,080 kcal/kg NAR basis.
Recent price declines in equivalent energy value Indonesian thermal coal to $56/mt FOB Kalimantan could lower the attractiveness of US thermal coal to Korean buyers, sources said.
"Indonesian low-CV coal has decreased compared to one or two months ago," he said.
NEAT RATIONALE
The NEAT Coal index reflects the price of 5,750 kcal/kg NAR thermal coal with a typical ash content of 15% as-received basis for delivery to Kinuura port in eastern Japan in the next 15-60 days, that is, from January 18-March 4.
Scant physical cargo trade was reported in the Northeast Asia market on the first trading day of the new year, but trade is expected to pick up in the coming weeks, market sources said.
One market source said buying interest was low because it was currently a holiday in South Korea.
"In Korea, not many tenders are coming up," said one trader, adding the last buy tender for high-calorific value thermal coal was over two weeks ago.
As a result of this lack of trade, Platts utilized its market prices for Newcastle 5,500 kcal/kg NAR thermal coal with 23% ash for its NEAT Coal index price assessment.
A 25,000 mt parcel of Newcastle 6,000 kcal/kg NAR thermal coal for March shipment traded at $90/mt FOB on globalCOAL in the Asia trading session. The parcel's size was lower than the 50,000 mt threshold required for inclusion in the NEAT Coal index.
Bid interest was heard at $66/mt FOB Newcastle for maximum 23% ash, 5,500 kcal/kg NAR cargoes for February laycan to scant offers from coal producers, and Platts price assessment for this grade Tuesday was $68/mt on a 20% ash basis, down $1 from the last price assessment on Friday.
Adjusted to 5,750 kcal/kg NAR, the price for this grade is $72.15/mt FOB Newcastle, and $75.05/mt on a 15% ash basis, using Platts' ash differential for this grade of $0.58/mt per 1% ash which gives a premium of around $3/mt.
Freight for a 70,000 mt Panamax ship from Newcastle, eastern Australia to Japan's Kinuura port, the normalization port for Platts' NEAT coal price assessment, was trading at about $9/mt Tuesday, down from $9.90-$10.15/mt for December laycan ships, said a shipping source.
"Pacific Panamax [freight rates] have dropped a lot since [December]," said the source. Kinuura port is the discharge port for Chubu Electric's 4,100 MW Hekinan coal-fired plant, one of the largest in Japan.
A South Korea-based source said typically, the end and beginning of the year is usually the busiest time for Korean traders, but "the market is not that hot in Korea."
"I seldom see utilities bidding recently," he said.
The strength of Korean demand depended on various external factors, he said. For example, there was some unexpected nuclear power plant maintenance last summer, which resulted in more demand for thermal coal.
"I had a hard time then. The problem is unexpected maintenance. Coal plants have to generate more. If it is planned, then we would secure earlier," he said.
