Coal trading soars as wage negotiations spook buyers

South Africa's physical coal is trading higher than the equivalent European contract for the first time in six weeks, as unions in the world's fifth largest exporter declared a dispute over wages and buyers stocked up ahead of winter.

South Africa is a major supplier of coal to developing economies China and India, and is expected to step up exports to Europe in the fourth quarter as part of a deal said to have been done by a trading house to ship 3.5-million tonnes to terminals in Amsterdam, Rotterdam and Antwerp (ARA).

South African coal for September delivery settled at $74.50 per tonne on Monday, compared with $74.10 for Colombian, US and Russian origin coal, wiping out a $5 premium for the European physical coal benchmark seen just two weeks ago.

Business Day reported on Tuesday that talks between coal producers and unions had reached a stalemate, meaning the government was likely to mediate in the dispute over wages in an attempt to avoid costly strikes.

Export numbers
The country's Richard's Bay terminal handled 68.5-million tonnes of exports last year, mostly thermal coal, and a strike at its coal mines later this year could impact shipments, traders said.

Most of South Africa's export grade coal is produced by Anglo American, BHP Billiton and Glencore Xstrata.

"India in particular stepped up buying in recent months of South African coal as power stations needed more imports and took advantage of weaker prices," said one trader.

South Africa exports about a third of its thermal coal to India, where high grades are mixed with lower standard Indonesian coal to burn in big new power stations operated by companies including Adani Power, Reliance Power and Tata Power.

South Africa exported 6.2-million tonnes of coal in July, up from 5.3-million in June and 4.3-million in May, figures from the Richard's Bay terminal show.

Indian demand
India, which is the world's second biggest importer of thermal coal, looks likely to step up demand in the coming months as an extra 12 gigawatts of coal-fired power is added to the grid in 2013, according to a forecast from Macquarie Bank.

The country's largest power company NTPC on Tuesday issued seven tenders to buy 5-million tonnes of coal to make up for a shortfall in local supply.

Indian power companies are looking increasingly to imports to try and avoid a repeat of a huge power cut in 2012 that was partly blamed on inadequate stocks of the fuel.

Prices for European physical coal have fallen around $3 since late July despite a three-week strike at US coal miner Drummond's operations in Colombia, which has so far removed around 1.5-million tonnes from the market.

Plentiful supply from other producers in the Americas and Russia has avoided sustained tightness in prompt contracts, traders said.

But ARA coal for November delivery is changing hands at a $2.60 premium as utilities book cargoes to stock up at a time power demand starts to rise sharply in the northern hemisphere. – Reuters

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John Mcgarrity
John Mcgarrity works from London. Freelance journalist and editor specialising in energy, infrastructure, finance, climate policy John Mcgarrity has over 413 followers on Twitter.
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