China shows it still has cards to play on coal supply

High level machinations in China seem to be affecting the coal price. In the north they have just announced they will cut coal imports from North Korea whilst in the south they have been unofficially blocking imports in a customs go slow.

In Australia the thermal coal price has been recovering but it seems Beijing will cap these gains by allowing its domestic producers to come back on stream.

Guangzhou port, the largest coal hub in southern China, has halted foreign coal imports, according to traders who use the port and said they had been informed of the shutdown by customs authorities and senior company officials. Traders said the move caught merchants using Guangzhou by surprise – the port has 14 coal berths and can handle 60 million tonnes of shipments per year – and they also interpreted it as a sign that Beijing will bring local thermal coal supplies back on stream as prices start to rise.

“We were told by customs that the port has stopped accepting foreign shipments,” said one trader, who stressed he could not speak to the media in an official capacity.  “Starting this week, we will avoid using the Guangzhou port.” Another trader based at Guangzhou said his company has stopped booking supplies for October arrivals, despite increasing demand from utilities.  “And it’s not just happening in Guangzhou but right up the coast . . . ports have been given unofficial import quotas,” said the trader, who also asked not to be named. The person said ports had been ordered to “slow the whole system down” to add additional costs to imported coal, after imports of steaming coal for use in power stations surged 25 per cent during the first half of the year.

SOURCE: Reuters/AFR, Silas Berry, asiaconsult.org

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Who wins and who loses – A380 bonds downgraded by Moodys as SQ parks them up

AsiaConsult  - Airbus A380

9VSKA on its first ever take off during pre-delivery testing

As the first Airbus A380 is returned to its German lessor (Doric/ Dr Peters) after just 11 years in operation, it is clear that this aircraft has not been the saviour that legacy carriers thought it might be. Apart from on a few routes to very busy slot constrained airports, it seems they just cannot fill the 500 plus seats.

Moody’s has also downgraded the certificates used by Doric to fund the leasing of a clutch of the aircraft operated by Emirates, last week. It cited weakening demand for ultra large aircraft with Airbus receiving only 5 new orders since 2013.

9V-SKA – the first Airbus A380 delivered to Singapore Airlines was taken out of service in June and is currently undergoing pre-return maintenance at Changi, prior to being handed back to the lessor. Four more SQ units will follow by June next year.

From a value perspective the interesting thing will be what happens next. Doric is essentially a financial engineering business. It has very little experience of selling end of lease aircraft but if its residual forecasts and lease terms were sound, it should be OK. However it is making some strange pronouncements. CEO Anselm Gehling suggestion that the planes might part out at USD 100 million (approximately 50% of their original purchase prices) looks pretty optimistic for 11 year old units. With relatively few aircraft in service, the parts market will be nowhere near as liquid as it was for the B747.  The fact that the newer, more fuel efficient A380’s have been substantially redesigned will further complicate the components market.

Of course, much depends on the detailed return conditions written into the leases. This is where the financiers often do well, by making sure aircraft are returned in almost ‘as new’ condition. With Malaysian and other carriers looking to get out of some of their units next year it will be interesting to see what a secondhand A380 is actually worth.