Chinese buyers fishing for Indonesian coal ahead of summer – traders

Chinese traders and utilities have begun to enter the spot market to shop for sub-bituminous coal for deliveries through summer, betting that domestic prices will rebound

over coming months as millions of households crank up their air-conditioners.
Although the import arbitrage for Indonesian coal has been shut for much of the first quarter and Chinese coal prices are expected to remain rangebound over the next few weeks, some Chinese traders are betting that summer cooling demand -- traditionally a season of peak power consumption -- along with a possible easing of monetary tightening, could make imports a more economical option.
One trader said he sold three Panamax cargoes in mid-March, one for each month starting in late May at around $94 per tonne on a landed basis from Indonesia to southern China. The price was based on coal with a heating value of 4,700 kcal/kg (NAR).
"We're not seeing a big rush but they are buying small quantities," said the trader, who has been selling into China for the past two years.
Chinese thermal coal with a heating value of 4,500 kcal/kg stood at 595 yuan ($90.75) this week on a free-on-board basis, according to industry portal SXcoal.com.
Another trader, who has not sold any spot cargoes to China recently, said there had been more enquiries of late and the price gap between Indonesian sellers and Chinese buyers had also narrowed, largely because prices across the whole coal complex had come off after the Japan quake.
Sub-bituminous supplies from Indonesia have also risen as weather in some areas improved and miners were eager to move some of their cargoes, as most utilities in South Korea and Taiwan are already comfortably stocked and have booked second-quarter shipments in recent tenders.
Demand for high-calorific coal, however, remains lacklustre. Imports from Australia and South Africa, based on current prices, were respectively $25 and $13 per tonne more expensive than local supplies. Forward prices on Newcastleand Richards Bay for May and June are just $1-$2 a tonne lower.
Although too early to be sure, some analysts have warned that China's total thermal coal imports this year may shrink, after recording gains of 34 percent in 2010.
Total coal imports in February slumped 60 percent from a month earlier to just 6.76 million tonnes, with thermal imports at a two-year low of 3.56 million tonnes. Analysts at Standard Chartered said imports for March could be just as sluggish since price differentials between domestic and international rates had stayed close at February's levels.
Industry sources have also reported few spot sales done in March for April amid abundant domestic supplies.
Data from industry portal CCTD showed output from key state-owned mines from eight key provinces produced 27.2 million tonnes of coal between March 11 and 20, up 6 percent from the first 10 days of the month and about 10 percent higher than the same period in February.
"We think healthy output from China will continue to weigh on imports in the second quarter," said Standard Chartered's Raymond Chan.