June 2, 2015 / 1:06 PM / 5 years ago

Richard's Bay coal market faces changes after complaints to globalCOAL

* Jump in bids for non-standard tonnages

* Some traders concerned about impact on prices

* Compliance committee to review members’ feedback Wednesday

* One proposal would limit trades to multiples of 25,000 T

By Sarah McFarlane

LONDON, June 2 (Reuters) - Coal trading platform globalCOAL will weigh changes to South Africa’s Richard’s Bay market this week after complaints about high bids for unusual tonnages.

Since January there has been a jump in the number of buyers looking for non-standard tonnages for RB1 coal, said globalCOAL, the world’s top physical coal broker.

Traders said those bids are often above the market, which some think is skewing prices higher, with a knock-on effect on the API 4 index, the benchmark for pricing South African coal.

The vast majority of bids and offers are made in multiples of 25,000 tonnes but traders said that in recent months there had been a rise in bids for non-standard amounts, such as 60,000 tonnes, which fewer sellers could meet, particularly at short notice.

Such volumes made up less than 1 percent of trade on the market over the last five years, globalCOAL data shows. This year, that has jumped to 14 percent.

Eoghan Cunningham, chief executive of globalCOAL, said its compliance committee would meet on Wednesday. It will review responses from members regarding the functioning of the market and whether it should limit volumes to multiples of 25,000 tonnes on the physical market.

“GlobalCOAL has received a substantial number of submissions from market members and will deliberate on that feedback,” Cunningham said.


One trader told Reuters that by entering bids on screen that no seller is in a position meet, a bidder could artificially push up prices.

“The way you do that is by the timing and size of those parcels,” the trader said.

As the market is not particularly liquid, bids and offers help inform pricing on the API 4 index, which is calculated using data gathered by Argus and IHS McCloskey.

Traders said that the concerns over artificially high bids pushing up coal prices on the API 4 index had cut the volumes traded.

API 4 trade volumes between January and May fell by almost a third from a year earlier, data published by the CME and ICE exchanges showed.

The index is the world’s third largest behind the API 2 benchmark for northern European coal markets and globalCOAL’s Newcastle benchmark index for thermal coal in the Asia-Pacific.

John Howland, senior director of coal at IHS Energy, said the firm tracks transactions from a variety of sources, including globalCOAL, to inform the API 4 index.

“We are in an on-going process of discussion with the market on how we should factor in these lot sizes before we make a decision about how, or if, the methodology should be amended,” Howland said, referring to globalCOAL’s review.

Argus declined to comment on globalCOAL’s consultation.

Editing by Veronica Brown and Jason Neely

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