At long last tremors of firming up in thermal coal market was felt over the last fortnight. Gradual creep from USD 84 per tonne to USD 90 per tonne, DES ARA is essentially borne out of some demand pick up in Europe and China owing to shortage of stocks as summer demand picks up.

September delivery contracts in the spot market continued too remained buoyant at around USD 91 per tonne, DES ARA. Ironically the thermal coal levels have touched the lowest value in the last 3 years but the cost are much higher this time giving the miners little elbow room to adjust production with the demand.

Moreover since most of the miners are fully contracted it is not possible for them to cut back on production whereas the bloating cost keeps their margin barely at cost plus. Some odd contract like the new benchmark price of USD 95 per tonne set between TEPCO and a major Australian supplier of 2 million tonne at USD 95 per tonne are keeping the hopes alive of better price realization when most of Australian miners sit with Japanese utilities to settle the next contract after 6 months.

China being the largest buyer of thermal coal has remained active despite sluggish market having imported 54 million tonne Jan-May 2012 YoY jump of nearly 40% exhibiting the demand growth against all odds. Concurrently nearly 18 million tonne of stockpile at Chinese port is keeping the levels suppressed.

However the coming days will certainly see improvement in levels as the mercury dips. Demand peaks during winters. USA being the game changer recently has had a relook at its price levels which has maintained negative differential vis-à-vis Australian miners during the same period. Uncle Sam is mulling supply pruning to bring their levels at par with the Australians if they can get better realization.

Source - Coal Guru

(www.coalguru.com)