Indonesian coal futures trade reaches new daily high

The ICI 4 derivatives market traded heavily today, reaching a record daily high of 227,000t, as market participants sought hedges out to the second quarter of 2020.

A total of 111,000t of first-quarter 2020 contracts traded and cleared on the CME exchange, with another 111,000t clearing for second-quarter 2020. All changed hands at $38.80/t and cleared in tranches of 5,000 t/month, 14,000 t/month and 18,000 t/month. These were all brokered by London-based Marex Spectron. And earlier today, 5,000t of April contracts traded at $38/t.

Today's trades take the total cleared so far in March to 758,000t — the highest monthly volume since the contract launched in February last year.

The prices achieved today were weaker than the majority of ICI 4 futures deals last week, which were above $40/t, although lower prices were reported by 15 March. Derivatives prices for ICI 4 dropped to $38.50/t by 15 March after a handful of trades from around $40.70/t at the start of last week. By the end of today, April 2019 derivatives were being bid at $36.25/t and offered at $38/t by Singapore-based brokers. First and second-quarter 2020 futures were offered at $39.50/t.

The gradual softening of prices reflects a similar trend on the spot physical market, as Chinese buyers watch and wait on expectations that prices will fall further with the end of winter heating season.

Trading on the physical Indonesian market was slow today, with many offers but few bids. GAR 5,000 kcal/kg coal loading in April was offered at $54-55/t, while at least one geared Supramax of GAR 4,200 kcal/kg was offered at $38.50/t for the same month. Earlier in the week, two bids for GAR 4,200 kcal/kg coal were reported as high as $38.25/t and $38.50/t, but bids today were down at around $37-38/t.

Fob Indonesia GAR 3,800 kcal/kg coal, which traded at around $30.70/t for March at the end of last week, was offered below $30/t this week for April loading.

Many Chinese buyers are well stocked and forecasts of improved weather in Indonesia's two key producing provinces, South Kalimantan and East Kalimantan, have also helped to ease some supply concerns. The slowdown in trading also follows a price rally that ran for over a month on Indonesian mid-calorific value (CV) and low-CV cargoes.

Some cargoes of Australian high-ash coal continued to sell to China, despite the country's apparent curbs on imports from Australia. At least 3-4 cargoes of NAR 5,500 April-loading coal has been sold to China so far this week, with the latest trades reported at $56.50-57/t fob Newcastle. One Panamax was also reported sold at $57.50/t fob Newcastle for April earlier in the week.

But a Capesize of NAR 5,500 kcal/kg coal was also offered at $58/t fob Newcastle for April loading and Chinese buyers bid around $57/t fob Newcastle for the cargo today. The arbitrage for the Australian coal to China "was good" given domestic prices, according to one buyer, while there was a consensus emerging among some market participants that the relationship between China and Australia might improve after May.

In the higher-CV market for Australian coal, a 25,000t cargo of NAR 6,000 kcal/kg coal loading in May traded at $89.50/t on screen today, but that did not meet the minimum volume requirement for the Argus index.

In the China domestic market, spot NAR 5,500 kcal/kg coal was offered at around 625-628 yuan/t ($93.40-93.80/t) fob northern China ports. Bids for the coal were around Yn620/t.

In China's futures market, the May contract on the ZCE closed at Yn596.40/t today, up by Yn5.40/t from yesterday.