The Shanxi mine explosions occurred in early August at the Xingergou colliery in Datong Coalfield and at two smaller collieries. The three collieries mainly supply domestic markets and are relatively small. But the real impact on exports occurred when Shanxi authorities called a halt to all mine operations in the province, China’s largest coal producer, while owners and managers attended a compulsory seven-day safety training programme.

Spot prices ex Richards Bay soared to US$36.0/t FOB in mid September, up $5 in the space of a month. Newcastle spot price rises were less spectacular, up $1.60 to US$27.20/t in mid September. This degree of dislocation between Richards Bay and Newcastle spot prices is quite unusual, being driven in part by spot ocean freight rates jumping to new record levels. Capesize rates from Richards Bay to Rotterdam hit US$16.30/t at the end of September, having more than doubled from US$7.80 per tonne at the same time last year.

But the unique thing about the US$8.80 gap between the spot prices at Richards Bay and Newcastle is that it is now larger than the difference of around US$7.00/t in the ocean freight rates from these two ports to Europe. This indicates that Pacific Rim steam coal exporters are now struggling to keep up with demand from their Asian customers, and not much interested in diverting coal into the European market.

The disruptions to supply from Shanxi and Kaltim Prima are being added to by port constrictions in Australia. The Port of Newcastle is struggling to keep up with demand from Japanese utilities looking to stock up in advance of the introduction of the coal tax. Newcastle shipped a record 6.74 Mt in August and looked likely to get close to that again in September.

The Port of Gladstone has had a rash of outages at the RG Tanna terminal, including downtime during the commissioning of its third berth, a series of problems with conveyor breakages and scheduled maintenance on one of its two ship loaders. At last count there were 12 ships anchored off Gladstone waiting for coal. The outages at Gladstone mainly affect the coking coal market but the port also handles significant volumes of steam coal.

Most of the drivers of the surge in steam coal spot prices are short-term in nature. Spot prices can be expected to retrace some of the recent gains, particularly into Europe, but the omens continue to look good for an increase in next years Japanese utility contract prices.

Turning to hard coking coal, the market has remained firm since the marked tightening that occurred late in the June quarter. Steel prices continue to rise - prices for pig iron imported into Japan and Korea have nearly doubled since early 2002 to over US$200/long tonne CIF. Hard coking coal producers are still reporting a high level of inquiries from potential customers, but many are sold out for the remainder of the year.

Ongoing problems at Queensland longwall mines, the problems at the Port of Gladstone and a strike at the German Creek Central colliery from 18 August to 7 September have also trimmed hard coking coal supply. Hence it appears very likely that Japanese contract prices will also rise next year – perhaps more than recouping the 4% fall at the beginning of the current Japanese fiscal year.