July 3, 2018 / 5:34 AM / 3 months ago

Australian Newcastle spot coal prices hit $120 for 1st time since 2012

SINGAPORE, July 3 (Reuters) - Australian thermal coal prices have broken through $120 per tonne for the first time since 2012, driven up by strong consumption in Asia and spot market buying by Japanese utilities to meet demand through the rest of 2018.

Thermal coal cargoes for prompt export from Australia’s Newcastle port last settled at $120.10 per tonne. That’s the highest close since November 2012 and up by 140 percent from record contract lows in late 2015/early 2016.

The price surge has been driven by strong demand from China to feed healthy power demand and industrial growth, despite a drive to shift industry and millions of households from coal to cleaner natural gas.

Restocking to provide cooling over the hottest summer months has added to demand, along with constraints on supply due to earlier mine closures and high hurdles to developing new mines amid concerns about pollution and global warming.

Indonesia has been the biggest beneficiary of China’s strong demand, but Australian miners have also benefited.

“Indonesian shipments to China saw the most gains, estimated to reach 61.8 million tonnes or approximately 49 percent of Chinese imports in the first 6 months of 2018, up from 46.3 million during the same period in 2017,” ship brokerage Banchero Costa said in a note to clients.

“Imports from Australia were estimated at 42.84 million tonnes or 34 percent of China’s imports in 1H 2018, marginally higher compared to the 42.62 million tonnes shipped during the same period in 2017,” it added.

Demand has also been supported by Japanese utilities, which buy about 40 percent of Australia’s thermal coal exports.

Traditionally, Japanese utilities receive most of their coal under long-term deals which they negotiate with suppliers.

However, talks between Japanese utility Tohoku Electric Power and Glencore, the world’s biggest supplier of seaborne thermal coal, were recently abandoned after they failed to reach an agreement.

Traders said this forced Tohoku into the spot market to cover anticipated demand for the rest of the year.

“Once it became clear there would be no agreement, Tohoku went into the spot market to order supplies from Australia,” said one trader with a major merchant, who declined to be named as he was not authorised to speak to media about commercial matters.

“Other utilities, which in the past have used the Tohoku/Glencore deal as a price benchmark, also rushed into the spot market to order coal,” he added.

Tohoku was not immediately available for comment.

Reporting by Henning Gloystein; editing by Richard Pullin

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