Australian miners bank on unwashed 5,500 kcal/kg NAR as Chinese demand rises

Many Australian coal producers based in Hunter Valley, one of the primary hubs of coal production, have scaled back washing 5,500 kcal/kg NAR -- a process that helps achieve higher grades -- amid rising demand from China for the said grade, several participants of the Asian thermal coal market said. Additionally, decline in demand for Australian 6,000 kcal/kg NAR from South Korea also prompted the producers to retain more of the lower grades.

"The more you wash a grade of coal, more you remove impurities such as ash content and you produce higher grades with better quality," an Australia-based producer said.

Glencore and Yancoal are some of Australia's notable miners who operate in Hunter Valley. However, queries sent to the companies remained unanswered.

China-Australia reunion driving demand

After China lifted the unofficial trade ban with Australia in early 2023, both countries have been trying to enhance business between them, said a trader based in Australia who deals with the Chinese market. "This is one of the reasons why China’s thermal coal imports have been rising ever since from Australia," the trader added. China had put an unofficial ban on Australian imports of several goods, including coal, in late 2020, which lasted until 2022.

Moreover, since there is barely any railroad structure connecting northern China with the southern part of the country, import windows are always open depending on the domestic price of high-calorific value coal, typically of 5,500 kcal/kg NAR, the trader said.

"Now Australian 55 NAR (5,500 kcal/kg) is the best possible equivalent for domestic supply both in terms of voyage, availability and price for southern China," the trader said.

Although Russian high-CV coal is in direct competition for Newcastle 5,500 kcal/kg NAR, its seasonal unavailability and geopolitical sanctions make the latter a natural preference for China, sources said. "Australian producers sold at least 80% of their Newcastle 5,500 kcal/kg NAR cargoes under long-term contracts at the beginning of 2023 to strengthen their trade relationship," a China-based trader said. It is likely that China will continue this trend in the upcoming year as well because it also allows the buyers to control prices in the spot market.

The Australia-based producer said higher demand from Chinese power plants, especially under long-term contracts, also prompted Hunter Valley producers to limit the washing procedure in order to keep more 5,500-5,700 kcal/kg NAR products in stock.

Price of Newcastle 5,500 kcal/kg NAR averaged $89.93/mt in January-September, compared with $105.71/mt a year ago, S&P Global Commodity Insights data showed. Platts, part of Commodity Insights, assessed the grade at $90.75/mt on Oct. 22.

Currently, inquiries from China have been moderate because the country already has sufficient existing stocks to cater to current demand. The stockpile at government-regulated power plants exceeds 200 million mt, with an average availability of more than 30 days of coal burn. However, market participants believe that China's strong long-term imports will keep its cumulative imports high for the whole of 2024.

Cumulatively, China's imports for the first nine months of fiscal year 2024 (January-December) rose 11.9% year on year to 389.12 million mt, supported by a drop in the landed price, the customs data showed. China imported 50.2 million mt of coal from Australia in the January-September period of the current fiscal year, compared with 38 million mt in the same period a year ago.

Price of China-delivered 5,500 kcal/kg NAR averaged $102.71/mt in January-September, compared with $121.40/mt a year ago, Commodity Insights data showed. Platts assessed the grade at $100.05/mt Oct. 22.

South Korea's demand drops for Newcastle 6,000 kcal/kg NAR

The Australia-based producer said after the global price for Newcastle 6,000 kcal/kg NAR rose and trades started happening around $140/mt on an FOB basis from August onward, South Korean buyers gradually shifted toward cheaper alternatives.

As an alternative, South Korean power plants, both state-owned and private producers, resorted to other origins such as Indonesian and Russian cargoes. Especially for Russian cargoes, the South Korean buyers were paying premium prices, but even then, there was a significant difference compared with what they had to pay for the Newcastle counterpart.

"Russian 6,000 kcal/kg NAR was sold around $120-$125/mt in the spot market in September," a trader based in China said. As a result, South Korea's purchases of Russian cargoes from the spot market began to increase compared with Australian cargoes.

South Korea imported 12.4 million mt of thermal coal from Russia in the January-September period, compared with 10.5 million mt imported from Australia in the same period, data from S&P Global Commodities at Sea(opens in a new tab) showed. South Korea procured 11.7 million mt of Australian coal in the same year-ago period, CAS data showed.