By Michael Cooper

October 12, 2018 - The slowdown in Australian thermal coal trade to China is resulting in shipments of off-specification coal traveling longer distances to Europe and even Africa, according to an analysis of shipping data from cFlow, Platts trade flow software.

"What is happening in China is having an impact further west," a market source said.

"There is some interest for Newcastle cargoes to India, especially 5,500 kcal/kg NAR coal, and even further afield to Europe," he said.

Some Australian high-ash coal cargoes have been sold even to Egypt, an emerging market.

This anecdotal information is backed by data from Platts cFlow software which shows several ships carrying Newcastle coal to new destinations.

For example, the Panamax ship Loch Ness arrived at the Port Sudan dry bulk discharge facility on October 6, laden with coal via Sri Lanka's Colombo port after loading at Newcastle port on September 4, Platts cFlow data showed.

South African thermal coal might be considered a natural choice for Egyptian buyers, given its closer proximity, but price appears to be a greater consideration.

"The price of Newcastle 5,500 kcal/kg NAR coal is lower than South African 5,500 kcal/kg NAR," the market source said.

The difference between FOB prices from the two origins is $5.50, according to S&P Global Platts data.

High-ash Australian coal is currently trading at $67/mt FOB Newcastle compared with $72.50/mt FOB Richards Bay, both on a 5,500 kcal/kg NAR basis.

Capesize freight from Richards Bay to Rotterdam is at $7.40/mt, indicating a delivered 5,500 kcal/kg NAR price for South African coal to Europe of about $80/mt.

For Australian 5,500 kcal/kg NAR cargoes, the Europe-delivered price would be not much higher than $80/mt CIF ARA on account of lower FOB prices at Newcastle.

Rotterdam-Bound

Platts cFlow shows the 180,000 mt Capesize ship Stella Laura is currently off the coast of Western Australia and bound for Rotterdam port after leaving Newcastle port on October 2. The ship is due to reach its destination in Europe around November 21.

Historically high prices for 6,000 kcal/kg NAR thermal coal have stimulated European demand for 5,500 kcal/kg NAR off-spec material, including Australian coal, sources said.

Some European power utilities are testing the suitability of Australian 5,500 kcal/kg NAR thermal coal in their power station boiler systems, a source said.

"It is purely down to cost," he said, adding that Australian 5,500 kcal/kg NAR cargoes were currently competitive for European buyers due to low freight rates.

But it is hard to say whether the few shipments delivered to Europe will develop into a longer-lasting trade flow, or whether it would remain opportunistic, he said.

"You cannot look at market fundamentals because they do not support what is happening," he said. "It is purely a speculative trade," he added.

Relatively high port stocks at northwest European ports and low Rhine river levels could deter some Australian high-ash cargoes from reaching Europe.

India has also been buying 5,500 kcal/kg NAR thermal coal from Australia because it was cheaper than Richards Bay 5,500 NAR thermal coal, sources said.