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Thursday, 30 January 14
JPU SETTLEMENT PRICE AS A BENCHMARK WILL DECLINE IN IMPORTANCE BUT REMAIN RELEVANT, SAYS WOOD MACKENZIE
 JPU price will remain above spot, trending closer to spot till 2015 then increasing to 2035.
Japanese Power Utilities (JPU) are approaching a crucial negotiation period with Australian coal producers in March, when large volumes are contracted annually. Wood Mackenzie says market players can expect JPU prices to remain above market prices for the foreseeable future. As for price trends, JPUs will have to pay high premiums till 2015, before dipping from 2016 to 2020. Post-2020 to the longer term, premium over spot prices will trend upwards again. This is a result of a move away from JPU-type coal in key demand markets, which also acts to reduce the significance of JPU price as a benchmark, although not negating it altogether.
In the next few years the JPU premium over market price will remain high, settling below US$7 per tonne ($/t) by 2015. Mr Prakash Sharma, Asia Pacific Coal Market Analyst for Wood Mackenzie says, "Although global oversupply persists in the overall seaborne thermal coal market, for the highly specific JPU-type coal supply, the market will be progressively tight as other customers increase their consumption of this type of coal.”
In the medium term from 2016 to 2020, Wood Mackenzie forecasts a period where the JPU premium will decline to as low as US$3.80/t over market price as additional JPU-type supply is set to come online and producers seek to gain market share by competitively pricing their product. However, growth in demand for lower quality coal in key markets is impacting producers' product mix strategies; thus reducing the availability of JPU-type coal. This combined with a longer-term decline in JPU-type supply capacity is projected to support the premium over spot prices.
Mr Rory Simington, Coal Supply Research Analyst for Wood Mackenzie elaborates, "Fast growing demand markets of China, India and South Korea, to some degree are turning away from higher priced JPU-type low ash coal towards a more inexpensive higher ash product available on the spot market. Producers who have experienced low prices throughout 2013, and have had their margins squeezed, have reduced production costs by switching much of their incremental production towards this higher ash 5,500kcal/kg NAR market. This leaves the supply growth picture for JPU-type coal fairly flat."
Japanese power plants cannot absorb a higher ash product due to their ash disposal concerns and have only used relatively small amounts of low-ash sub-bituminous coal from Indonesia. Therefore JPUs will likely still demand predominantly JPU-type coal. However, Japan's role in the Asia Pacific coal market place will diminish as its proportion of the thermal market declines from 31% to only ten percent by 2035. Consequently, this reduces the significance of JPU price as a benchmark.
Mr Sharma says, "With the fairly flat supply growth outlook for JPU-type coal, a tighter market will result for Japanese procurement. JPUs are acutely aware of this development. Since Japan is completely reliant on coal imports, JPUs are willing to pay a premium over spot prices to lock-in the price for twelve months rather than risk supply availability by switching to index-linked pricing. This is crucial as we believe nuclear capacity in Japan will not return to pre-Fukushima levels. As such, other fuels including coal will need to play a larger role."
"Even if headlines suggest Japan is increasing imports from North America to reduce reliance on Australian producers, the negotiations are still of great importance to Japan as we do not foresee North American supply satisfying their requirements to the same extent Australian producers can." North America currently supplies two percent of Japan's thermal coal requirements. By 2025, Wood Mackenzie estimates North America will still only make up less than ten percent of Japan's thermal coal requirements.
For the longer term past 2020, Wood Mackenzie forecasts premia rising steadily again as the availability of JPU-type coal continues to decline. The margin between JPU settlement price and cost of JPU-type coal production will support the development of new projects. Therefore, JPUs will have to recognise the need to offer higher premiums in order to incentivise new supply. The steadily rising premium will reach US$5.50/t by 2027 and US$10/t in 2035 as higher cost coal projects are developed.
In summary, Mr Sharma says, "Japan recognises the need to secure supply and price stability. Therefore, JPUs favour contracts to the spot market, even at a premium. This will keep JPU pricing relevant albeit playing a diminishing role as a benchmark due to the growing market proportion of higher-ash coal in the region. In the longer term post-2020, this need will translate to JPUs having to pay higher premiums so as to incentivise Australian producers to maintain supply capacity. Hence, the JPU benchmark may lose the status of price-setter but will not likely become a price-taker even if it means that the premium will persist."
Wood Mackenzie's Editor’s notes:
JPU-type coal refers to the coal type imported by Japanese Power Utilities which is prime quality bituminous thermal coal (6322kcal/kg GAR) from Australia under term contracts.
Market prices refers to New FOB Newcastle Market Price @6000kcal/kg NAR. It is used interchangeably with the term 'spot price' in this news release.
About Wood Mackenzie
Wood Mackenzie is the most comprehensive source of knowledge about the world’s energy and metals industries. We analyse and advise on every stage along the value chain - from discovery to delivery, and beyond - to provide clients with the commercial insight that makes them stronger. For more information visit: www.woodmac.com
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Wednesday, 22 March 23
MARKET INSIGHT - INTERMODAL
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Monday, 20 March 23
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Monday, 20 March 23
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Saturday, 18 March 23
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- The State Trading Corporation of India Ltd
- Tata Chemicals Ltd - India
- Kalimantan Lumbung Energi - Indonesia
- Parliament of New Zealand
- Orica Australia Pty. Ltd.
- Bukit Baiduri Energy - Indonesia
- Agrawal Coal Company - India
- Global Business Power Corporation, Philippines
- SMG Consultants - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Borneo Indobara - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Power Finance Corporation Ltd., India
- Merrill Lynch Commodities Europe
- Bayan Resources Tbk. - Indonesia
- IHS Mccloskey Coal Group - USA
- Parry Sugars Refinery, India
- Sindya Power Generating Company Private Ltd
- Edison Trading Spa - Italy
- Global Green Power PLC Corporation, Philippines
- Karaikal Port Pvt Ltd - India
- Eastern Energy - Thailand
- Orica Mining Services - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Alfred C Toepfer International GmbH - Germany
- Wilmar Investment Holdings
- Aboitiz Power Corporation - Philippines
- Malabar Cements Ltd - India
- Economic Council, Georgia
- Indonesian Coal Mining Association
- Africa Commodities Group - South Africa
- Bharathi Cement Corporation - India
- Pendopo Energi Batubara - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- McConnell Dowell - Australia
- Gujarat Electricity Regulatory Commission - India
- Mjunction Services Limited - India
- Kideco Jaya Agung - Indonesia
- Metalloyd Limited - United Kingdom
- Heidelberg Cement - Germany
- LBH Netherlands Bv - Netherlands
- Iligan Light & Power Inc, Philippines
- Wood Mackenzie - Singapore
- India Bulls Power Limited - India
- Simpson Spence & Young - Indonesia
- Bhushan Steel Limited - India
- Latin American Coal - Colombia
- Indo Tambangraya Megah - Indonesia
- Bangladesh Power Developement Board
- Makarim & Taira - Indonesia
- OPG Power Generation Pvt Ltd - India
- Romanian Commodities Exchange
- Jaiprakash Power Ventures ltd
- Meenaskhi Energy Private Limited - India
- CIMB Investment Bank - Malaysia
- Aditya Birla Group - India
- Grasim Industreis Ltd - India
- Globalindo Alam Lestari - Indonesia
- South Luzon Thermal Energy Corporation
- ASAPP Information Group - India
- Mercuria Energy - Indonesia
- Straits Asia Resources Limited - Singapore
- Sical Logistics Limited - India
- Planning Commission, India
- Global Coal Blending Company Limited - Australia
- Coalindo Energy - Indonesia
- Maheswari Brothers Coal Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Chamber of Mines of South Africa
- AsiaOL BioFuels Corp., Philippines
- Energy Link Ltd, New Zealand
- Thiess Contractors Indonesia
- Star Paper Mills Limited - India
- Trasteel International SA, Italy
- Oldendorff Carriers - Singapore
- The University of Queensland
- Bulk Trading Sa - Switzerland
- Sakthi Sugars Limited - India
- Bukit Makmur.PT - Indonesia
- Petron Corporation, Philippines
- Independent Power Producers Association of India
- Semirara Mining and Power Corporation, Philippines
- Semirara Mining Corp, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Meralco Power Generation, Philippines
- The Treasury - Australian Government
- Kartika Selabumi Mining - Indonesia
- Mercator Lines Limited - India
- PTC India Limited - India
- Ministry of Mines - Canada
- Holcim Trading Pte Ltd - Singapore
- Tamil Nadu electricity Board
- Timah Investasi Mineral - Indoneisa
- Carbofer General Trading SA - India
- Jindal Steel & Power Ltd - India
- Kumho Petrochemical, South Korea
- GAC Shipping (India) Pvt Ltd
- London Commodity Brokers - England
- Central Electricity Authority - India
- Cigading International Bulk Terminal - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Siam City Cement PLC, Thailand
- Energy Development Corp, Philippines
- Posco Energy - South Korea
- Dalmia Cement Bharat India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Kohat Cement Company Ltd. - Pakistan
- Pipit Mutiara Jaya. PT, Indonesia
- MS Steel International - UAE
- Essar Steel Hazira Ltd - India
- Coal and Oil Company - UAE
- ICICI Bank Limited - India
- Eastern Coal Council - USA
- Kepco SPC Power Corporation, Philippines
- Vizag Seaport Private Limited - India
- Indian Energy Exchange, India
- Ind-Barath Power Infra Limited - India
- Salva Resources Pvt Ltd - India
- Kobexindo Tractors - Indoneisa
- Indogreen Group - Indonesia
- Deloitte Consulting - India
- Directorate Of Revenue Intelligence - India
- Therma Luzon, Inc, Philippines
- Indian Oil Corporation Limited
- Barasentosa Lestari - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Kapuas Tunggal Persada - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- TeaM Sual Corporation - Philippines
- Singapore Mercantile Exchange
- Maharashtra Electricity Regulatory Commission - India
- Bukit Asam (Persero) Tbk - Indonesia
- Goldman Sachs - Singapore
- Renaissance Capital - South Africa
- White Energy Company Limited
- Port Waratah Coal Services - Australia
- Bhatia International Limited - India
- Central Java Power - Indonesia
- Coastal Gujarat Power Limited - India
- Australian Commodity Traders Exchange
- Xindia Steels Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Videocon Industries ltd - India
- Gujarat Sidhee Cement - India
- Siam City Cement - Thailand
- Miang Besar Coal Terminal - Indonesia
- Anglo American - United Kingdom
- Krishnapatnam Port Company Ltd. - India
- VISA Power Limited - India
- International Coal Ventures Pvt Ltd - India
- Savvy Resources Ltd - HongKong
- Asmin Koalindo Tuhup - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Standard Chartered Bank - UAE
- Billiton Holdings Pty Ltd - Australia
- Ministry of Transport, Egypt
- Altura Mining Limited, Indonesia
- Toyota Tsusho Corporation, Japan
- Attock Cement Pakistan Limited
- Leighton Contractors Pty Ltd - Australia
- Riau Bara Harum - Indonesia
- Baramulti Group, Indonesia
- Sojitz Corporation - Japan
- Sree Jayajothi Cements Limited - India
- PNOC Exploration Corporation - Philippines
- Indika Energy - Indonesia
- Marubeni Corporation - India
- European Bulk Services B.V. - Netherlands
- New Zealand Coal & Carbon
- Ambuja Cements Ltd - India
- Medco Energi Mining Internasional
- Bhoruka Overseas - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Jorong Barutama Greston.PT - Indonesia
- SMC Global Power, Philippines
- Binh Thuan Hamico - Vietnam
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Cement Manufacturers Association - India
- Electricity Generating Authority of Thailand
- Price Waterhouse Coopers - Russia
- Manunggal Multi Energi - Indonesia
- Mintek Dendrill Indonesia
- San Jose City I Power Corp, Philippines
- Georgia Ports Authority, United States
- Interocean Group of Companies - India
- Vedanta Resources Plc - India
- Australian Coal Association
- Thai Mozambique Logistica
- Samtan Co., Ltd - South Korea
- Banpu Public Company Limited - Thailand
- CNBM International Corporation - China
- Uttam Galva Steels Limited - India
- Ceylon Electricity Board - Sri Lanka
- IEA Clean Coal Centre - UK
- Lanco Infratech Ltd - India
- Kaltim Prima Coal - Indonesia
- SN Aboitiz Power Inc, Philippines
- Rio Tinto Coal - Australia
- Formosa Plastics Group - Taiwan
- PowerSource Philippines DevCo
- Neyveli Lignite Corporation Ltd, - India
- Ministry of Finance - Indonesia
- Minerals Council of Australia
- TNB Fuel Sdn Bhd - Malaysia
- Electricity Authority, New Zealand
- Chettinad Cement Corporation Ltd - India
- Commonwealth Bank - Australia
- Sarangani Energy Corporation, Philippines
- Bahari Cakrawala Sebuku - Indonesia
- GMR Energy Limited - India
- Larsen & Toubro Limited - India
- Antam Resourcindo - Indonesia
- GVK Power & Infra Limited - India
- Intertek Mineral Services - Indonesia
- Madhucon Powers Ltd - India
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