International vessel freight rates have jumped sharply in recent weeks, driving up the cost of imported thermal coal into China and dampening market activity, traders said.

 

The limited availability of vessels came amid disruptions in the Panama Canal and soaring demand for commodities including iron ore and grain.

 

At present, freight rates for Capesize vessels carrying coal from Australia to southern China ports have climbed to $18.5-21/t compared to around $15/t a week earlier, while Panamax rates from South Kalimantan in Indonesia have risen to $11/t from $9.5/t previously.

 

Buyers became more cautious, owing to the surge in freight costs, and fulfilling earlier contracts would result in losses, said a Guangdong-based trader, adding the duration of high freight rates remained uncertain.

 

"Affected by rising freight, the cost of imported coal in China has increased on a CFR basis with VAT. Some sellers have lowered offer prices to offset higher freight rates," said a market participant.

 

An Indonesian miner reported a few bids hovering $56-57/t FOB for 3,700 Kcal/kg NAR Supramax cargoes, while another market source based in Singapore reported some offers for this grades have already declined to around $56/t.

 

Offers for 3,800 Kcal/kg NAR grade were heard between $59/t and $60/t FOB on a Supramax basis for January loading, according to the Indonesian miner.

 

With rising costs, imported coal's price advantage has narrowed against Chinese domestic supplies, said a Fujian-based trader, adding offers for 4,500 Kcal/kg NAR cargoes were heard at 730 yuan/t CFR with VAT at ports along Yangtze River, but failed to translate into any deals.

 

As of December 4, Indonesian 4,700 kcal/kg NAR coal held a price edge of 56.60 yuan/t on a CFR South China with VAT basis compared to same-quality Chinese domestic coal from north China ports, down from 69.32 yuan/t a week earlier, Sxcoal's calculations showed.

 

With imported coal costs remaining elevated, downstream utilities were less willing to release tenders and the market has slowed, traders informed, expecting the sluggish situation to persist in the near term.

 

Meanwhile, some Indonesian mines have seen operations disrupted by rains but overall supply was largely stable, with some producers looking to boost supplies to domestic smelters amid weak demand in the international market, traders added.

 

Chinese demand for Australian coal has been subdued as well by the high shipping cost, a Beijing-based trader noted.

 

On December 5, the CCI index for Indonesian 4,700 Kcal/kg NAR thermal coal was at $93.5/t CFR South China and $83.0/t on a FOB basis, both flat from a day earlier. The CCI index for Indonesian 3,800 Kcal/kg NAR coal was assessed stable at $70.5/t CFR, but down $1.0/t on the year to $58.0/t FOB.

 

The CCI index for Australian 5,500 Kcal/kg NAR coal was steady at $112.0/t CFR South China.