S Korea copes with Q1 delays in Indonesian coal delivery, confident on Q2
PLATTS

Several South Korean power companies are facing delays in the delivery of Indonesian thermal coal because several miners have deferred shipments from the first quarter to the second due to incessant rain, industry sources said.

However, South Korean market participants said they were hopeful that this issue could be resolved by mid-March.

Heavy rain on the coal-producing Indonesian islands of Kalimantan and Sumatra have led to delays in shipping cargoes of lower calorific value coal by small- and medium-sized producers, industry sources said. Platts has so far confirmed Q1 delivery delays of at least six Panamax shipments of Indonesian coal with heating values of 4,600-4,800 kcal/kg NAR.

However, one South Korean power utility source said contract overbooking by shippers also contributed to the delays.


In February, South Korean end-users were notified of the deferrals of the cargoes that were originally scheduled for March delivery, industry sources said.

Meanwhile, the South Korean power utility source said he secured one prompt Panamax cargo of sub-bituminous coal from another Indonesian supplier in mid-February due to the delay in shipment from the original suppliers and also borrowed some low calorific value coal supplies from another South Korean utility.

Another utility, Korea Western Power (Kowepo), launched two sub-bituminous coal tenders late February for a combined 140,000 mt of material with heating values of 4,200-4,600 kcal/kg NAR for March 26-April 10 loading. This means that coal delivery to its Taean power station could be in mid-April at the earliest.

A week earlier, Kowepo canceled a tender for one Panamax shipment of coal with a minimum calorific value of 4,200 kcal/kg NAR for March loading after considering the Indonesian price offers by Glencore and Flame to be too high. The companies offered prices of $79-$80/mt FOB, basis 6,080 kcal/kg NAR. Industry sources said Kowepo was aiming for $75/mt, basis 6,080 kcal/kg NAR.

A South Korean trader and a second utility source said the latest Kowepo tender launches were not acts of desperation in response to the Indonesian coal delivery delays. Kowepo has an option to reject all bids in the two latest tenders if it still deems the price offered to be too high.

The utility source said Kowepo has enough cargoes for Q1. There is no shortage of bituminous coal supplies, he added.

"The delays in delivery are not a big problem. We have enough supplies for Q1," the first utility source said.

A South Korean trader described the current stockpiles after the end of winter as normal -- sufficient for 15-20 days. During the winter season, the stockpile levels were higher at about 25 days.

He also said there had been no official declarations of force majeure by Indonesian shippers or producers, but the South Korean utilities affected have only been advised that shipments will be moved to Q2 from Q1.

An official at the Indonesian Agency for Meteorology, Climatology and Geophysics, or BMKG, told Platts that rains are still expected to continue in March but will not be as heavy as in February.

He said Kalimantan and Sumatra experienced an average monthly rainfall of 200-400 mm in February. He said the rains will be less in March at 200-300 mm.

Less disruptive precipitation can still be expected in April after which Indonesia will enter the dry season -- from May to September, the BMKG source said.

Three utility sources said South Korea's five thermal power utilities have secured up to 90% of their required cargoes for Q2.

All five South Korean utilities will have coal-fired units scheduled for maintenance in Q2, the first utility source said.

South Korea did not idle its coal-fired power plants for maintenance during the harsher-than-usual winter season. It was able to manage its limited excess power generating capacity during the winter despite the unexpected closure of two nuclear reactors and scheduled maintenance on a third one.

"Q2 is not a critical quarter," the second utility source said. "It will help if the delayed Indonesian cargoes will be delivered and the weather in Indonesia improves," he said.

Most of South Korea's sub-bituminous coal requirements are supplied by Indonesia. South Korean utilities' strategy is to make sure that 60% of the contracted tonnages are high calorific value coals during the peak season in winter and summer.

During the off-peak season, the ratio can go to 50:50.

The keenly monitored Australian thermal coal price negotiations for the Japanese fiscal year 2013-14 will make a significant impact in South Korea's Q2 coal procurement plans, he added. Industry sources say prices usually rise before Australia-Japan thermal contract price negotiations.

"We know that every year prices rise before the Australia-Japan negotiations. We are 90% covered for Q2. We have time to wait and monitor the market situation. We are not in a hurry," the first utility source said.

--Cecilia Quiambao, Cecilia_quiambao@platts.com
--Edited by Jonathan Dart, jonathan_dart@platts.c