Metallurgical coal freight trend amplifies Atlantic/Pacific differences
Atlantic met coal buyers may be anticipating sharp falls in pricing for second quarter cargoes after paying a multi-year high under benchmark-related Q1 contracts, but the current freight rate tendency may better support prices for US cargoes.
Buyers negotiating with US and European suppliers around references with adoption of Australia FOB-based quarterly HCC benchmark pricing, and spot indices around premium and mid-tier Australian coals, may find sharply higher shipping rates seen from the Pacific adding complexity.
The so-called benchmark is negotiated between northeast Asian buyers and Australian suppliers of coal, and therefore the outcome of the contracts may be less relevant when the shipping rates and times, internal and stockpile logistics and quality preferences of buyers in the Atlantic are considered.
Many Atlantic buyers are tapping the coke market, and using coal from the US, Russia, Colombia, Mozambique, as well as Polish and Czech origins.
As the Atlantic-based steel industry moves to close second-quarter coal and coke pricing, the relatively higher freight costs for Australian coal, on top of voyage timing and transaction cashflow management costs, may prove decisive.
Australia-led spot prices alone may not compare favorably even against the potentially higher relative coal and coke costs paid up for nearby suppliers, sources including buyers and a US miner said.
Coke transported by land minimizes the generation of coke fines, in addition to other logistics advantages while quality at blast furnace units has been proven over time, said one buyer in Europe.
He confirmed PCI from Australia was not being used while acknowledging current Australian spot prices, and like many others in the region, was dependent on Russian PCI.
Panamax rates for US East Coast to Rotterdam assessed by S&P Global Platts at $9.75/mt as of Thursday, are currently lower than for Capesize rates from Queensland, with a big shift in the relationship since mid-February, when Pacific Capesize rates moved higher.
For buyers unable to fix a Capesize, or share the larger vessel from Australia with other buyers, a single port loading Panamax from Queensland’s DBCT terminal to Rotterdam was indicated at $15/mt on Wednesday, according to international freight brokers Barry Rogliano Salles.
BRS indicated the route at $13/mt on February 22, when Platts published Hampton Roads to Rotterdam at $9/mt.
While some US coal contracts may adopt the benchmark outright in pricing formulae, or the quarterly percentage changes in terms and as part of final negotiations, the usage of US spot indices-based contract pricing has grown.
This is solidifying the importance of regional factors including differing logistics and transaction financing in final coal pricing.
Panamax rates from the Alabama port of Mobile to Rotterdam, last assessed by Platts at $11.75/mt, remain at a premium to Capesize rates from Hay Point to Rotterdam, but the gap has narrowed from earlier in Q1 as Pacific rates climbed.
“The Capesize market has been strong and there have been steady increments which is promising,” said a freight source focused on met coal.
This trend may continue and there may be bigger increases to rates, which could further impact the differential with US Panamax rates, he suggested.
“Whether US suppliers can take advantage of the freight trend remains to be seen and is only something they can control,” the source added.