The incipient recovery in Pacific Rim spot prices is expected to gain momentum over the next couple of months as producers constrain output and Asian consumers increase purchases in advance of the northern summer. The strength of the spot price recovery will depend in large part on how many of Tokyo Electric’s suspended nuclear units can be brought back on stream over the next few months.

Atlantic spot prices remain chronically weak, and Richards Bay FOB prices are likely to spend much of the northern summer below Newcastle FOB prices. Plans for major capacity expansions of Colombian mines, particularly at Cerrejon Coal and La Loma, do not bode well for any significant recovery in European spot prices, although late this year prices may increase a little when European winter coal demand kicks.

Rising US domestic spot prices are likely to stimulate increased US coal imports from Colombia and Venezuela, putting some kind of floor under the European prices.

Japanese electricity utility negotiations with Australian suppliers are taking longer to be finalised than originally thought. Some utilities are still holding out for discounts below the Tohoku Electric price settlement of –7%. It appears that some reasonably significant differences in price settlements between utilities may emerge.

Indonesian negotiations are progressing, but there has been little progress in Chinese and Russian negotiations. Russian exporter Yakutugol is even still hanging out for an increase in price for its Neryungrinsky SS Coal from last year’s level of ca. US$27/t FOB. Both Russian and Chinese exporters are arguing that current high ocean freight rates should entitle them to a smaller FOB price reduction than more distant suppliers such as Australia. Chinese exporters are in quite a strong negotiating position given the strength of their domestic coal markets.

Korean utility negotiations are still deadlocked, with Australian suppliers trying to force a price increase from last years bargain basement US$25/t FOB to a level in line with the Tohoku settlement for this year of ca. US$26.75/t FOB.

Turning to coking coal, the Japanese steel mills have completed annual settlements with major Australian, Canadian and Russian suppliers, but Chinese negotiations remain deadlocked.

Hard coking coal is in very short supply in China at present, with domestic steel production continuing to grow rapidly. Traded coke prices have climbed ever higher, to ca. US$140/t FOB, so there is every incentive for the Chinese to produce as much coke for export as possible rather than accepting a price cut into Japan for scarce coking coal. The FOB price of Chinese coking coal would have to almost double to ca. US$90/t to provide the same returns as converting it to coke and exporting it.

It is looking increasingly possible that China could become a net importer of hard coking coal within the next few years.