Via Morgan Stanley:
2017’s been a tough year for Aussie met-coal: still getting over a Q1 cyclone + now S32’s Appin’s down for a while… Trouble at Appin: Last week (10 July), South32* declared force majeure on coal deliveries from Australia’s Illawarra, after it was directed by the industry regulator to close, due to unsafe gas levels at the company’s 5.5Mtpa Appin underground mine. Reporting high gas levels for over a year, it will now stay closed until the workings are cleared. The company expects a “long outage”; trade counter parties suggest 2-3 months. South32’s Illawarra product is a 60:40 blend of mid-vol hard coking coals from Appin + still-operating 3Mtpa Dendrobium mine, shipped from South32’s Port Kembla port = 3% of the globally traded supply (MSe 320Mtpa), delivered to Asia. Spot prices responded this past week: +8% to US$166-167/t fob for top-grade HCCs (Exhibit 1).
‘…takingcoals to Newcastle’: A bizarre outcome of this latest Australian supply shock (i.e.vs. March 2017’s TC Debbie) is Vale’s delivery last week of mid-/low-vol HCC from Nacala, Mozambique to Port Kembla, Australia (Platts;70kt). It is not yet known if the load is intended to help resolve South32’s supply shortfall – although it’s difficult to explain a shipment of met-coal to the world’s largest met-coal exportingnation,at this point in time, in any other way. Our industry contacts believe that Dendrobium coal cannot be sold into the market in its own right,at shortnotice; it requires blending. So it seems likely that the Mozambican coal is to replace Appin output for now, to be blended with Dendrobium product.
