It has been reported that thermal coal and iron ore buyers in Asia have been defaulting on their contracts since the second half of May 2012, consequently sending prices sharply down.

The increasing defaults from coal buyers could be down to either a lack of demand for raw materials, or that buyers are taking advantage of falling prices and are hoping to rebook the same goods at a lower cost in the future.

Law firm Watson, Farley and Williams (WFW) is urging suppliers to take a closer look at their contracts to mitigate or avoid defaults. Coal buyers usually cite ‘off specification’ for unwanted products or discrepancies between the loading specifications and transit and customs delays.

However, WFW says that regardless of the merits of the buyers’ reasons, suppliers faced with a default situation need to ensure that all their rights are protected and that there are mechanisms in place to minimise, or avoid, loss.

Marcus Gordon, a partner at WFW tells GTR: “In our experience, delays in taking appropriate remedial action in a default situation can result in avoidable claims or losses approaching the full value of the contact, or potentially more.”

Casting another shadow over Asia’s coal industry is the news that Indonesia is planning to curb its coal exports measures to conserve coal for domestic use. The government is also believed to be considering adding tax payments on to mineral shipments.

“With contradictory statements having been issued by various Indonesian authorities in the past few days, there remains considerable uncertainty as to how the issue of controlling coal exports will ultimately be addressed,” Damian Adams, partner at WFW tells GTR.

“What appears certain though is that an additional tax burden on coal producers already subject to royalty payments will be of major concern for the industry at large, especially in the current weakened price environment, with demand from the major coal importers slowing down.”