Richards Bay FOB thermal coal prices will gain support from the recent opening of an arbitrage window for South African coal into the key pricing point, China, as well as rising interest from South Korea and Taiwan, analysts at investment bank Macquarie said in a report released Monday. The Richards Bay market has fallen over the last month amid a lack of Asian demand, with Platts assessing front-quarter Q1-12 API4 financial coal derivative prices at $115.85/mt on October 7, down $8.30 from a month earlier.
The bank said that thermal coal supply is "ticking along very nicely" in most parts of the world, citing improving Australian performance and booming Indonesian production amid favorable weather conditions over the past few months. "Colombia and the US appear to be performing strongly, while Richards Bay is set to have a decent Q4 following better coal railings in the year-to-date compared to last year," Macquarie said.
With both API2 (CIF ARA) and API4 (FOB Richards Bay) index prices coming under pressure in the past month, the bank said there is some concern that thermal coal is a laggard now catching up to other commodities, but described a downward correction as "unlikely." "API4 is now pricing into China and is very competitive against Newcastle, with rising interest from Korean and Taiwanese buyers that should give it very strong support at these levels," Macquarie said. The bank added that a narrowing of the implied freight differential between API2 and API4 seems "likely" while Australian Newcastle FOB prices "may fall a few dollars to price more competitively against South African coal."