South African blackouts, soaring Indian imports lift coal prices

May 6, 2015 7:37 AM

By Henning Gloystein

A coal ship waits to be loaded at the port in Gladstone, Queensland, in a file photo. REUTERS/Daniel Munoz

SINGAPORE (Reuters) - Power blackouts in South Africa and soaring Indian imports in anticipation of an El Nino climatic event have pushed thermal coal prices in the Indian and Pacific Ocean basin up since the beginning of May, raising their premium over European cargoes.

Prompt cargoes from South Africa's Richards Bay terminal have jumped 9 percent to $67 a tonne since the beginning of the month as rolling power blackouts in the country threaten mining output and port loading.

Prompt cargoes from Australia's Newcastle terminal last settled at $64.95 a tonne, up from $62.30 at the beginning of May.

Prices were also driven up by rising demand in India, where utilities are stocking up on coal in preparation for an El Nino weather event that could affect rain levels during the monsoon season.

Last year, India's hydro levels were very low because of insufficient rainfall during monsoon, triggering a coal shortage as utilities scrambled to replace hydro-power with other fuels for electricity generation.

"A forecast of a strong El Nino and therefore the possibility of a deficient monsoon will be noted even more after the disastrous effect on the power sector in 2014," energy brokerage Marex Spectron said on Wednesday.

"The government now seems determined to avoid the mistakes, and especially the blackouts, of the past years. Coal imports to India have increased considerably since early this year and have meanwhile reached record high levels," it added.

The brokerage said that India's imported coal stocks had risen from a low of under a million tonnes last year to more than 3.5 million tonnes now.

The price rises mean that South Africa's and Australia's premium over cargoes delivered into Europe's ports of Amsterdam, Rotterdam or Antwerp (ARA) are now at $7.35 and $5.30 a tonne respectively.

Yet Newcastle coal in particular has been volatile this year, seeing seven price rises or falls of 10-30 percent within two trading sessions since February.

As a result, the spread between the two has been opening and closing in a $22 per tonne range runing from a $17.6 Newcastle premium over ARA to a discount of $4.3 a tonne.