Australia steam coal prices resilient as demand slows

SHANGHAI: Australia's thermal coal index was largely flat at close to $121 a tonne this week, as weaker demand from the rest of Asia was offset by wet weather in the key Hunter Valley coal belt, which helped to absorb extra supplies.

Steam coal prices in Australia finished the second quarter little changed but have shed nearly seven percent so far this year, after the deadly earthquake and tsunami in Japan slashed coal demand in the world's largest consumer of steam coal, which is also the largest buyer of Australian coal.

Thermal coal on the global COAL Newcastle index for the week so far was $120.97 per tonne on Friday, down marginally from $121.26 a week earlier.

Sales have been thin in recent weeks, with Japanese and Chinese buyers out of the market, and they are likely to stay away until around September, when winter buying starts.

In a sign that import demand from China is fading, inventories at Chinese power plants and ports have swelled over the past week while domestic steam coal prices also paused after a rally of 14 consecutive weeks.

"We are entering a seasonal demand low, so that could put some pressure on prices. But Australia is entering a wet season, so that should give some underlying support," said a Sydney-based trader.

However, despite weakened demand, few sellers are unwilling to lower their prices and are offering discounts of just a $1 a tonne for prompt July-loading cargoes, a trader said, highlighting the resilience of Australian prices.

Industry sources said top thermal coal exporter Xstrata was still in talks with Japanese utilities for the July-start annual contracts, with market expectations of the settlement prices at between $125 and $128 a tonne.

Separately, market participants were also keeping a keen eye on strike actions at mines operated by BHP Billiton-Mitsubishi Alliance, after unions said this week they would continue with industrial action to press for better entitlements.

An extended strike at the targeted mines, which have a combined output capacity of more than 58 million tonnes of coking coal per year, could push up the price of steel making coal and in turn prompt other miners to change their production mix at the expense of thermal material.

A full week of 12-hour stoppages at BMA's mines could cut production by up to 1 million tonnes, according to analysts' calculations.

Copyright Reuters, 2011