* S African contracts make big gains, volume hefty
* Richards Bay physical coal overtakes Newcastle contract
LONDON, Oct 22 (Reuters) - South African physical coal rose in brisk trade on Tuesday, ranking as the top gainer in the coal markets and prompting talk that a major trading house was buying cargoes to back up a futures position.
Physical coal to be delivered from South Africa in December last traded at $85.80, up $1.40 from Monday's settlement, while the January contract settled at $87.20, up over a dollar from the previous close, figures from screen-based broker globalCOAL showed.
The volume on globalCOAL for South African contracts amounted to 150,000 tonnes on Tuesday, more than double the usual figure.
"A lot of people suspect that a major trading house has been making a strong effort to influence the paper markets by bidding up South African coal in the physical markets," one trader said.
"In terms of the physical market, it doesn't make a great deal of sense because of the higher cost of shipping coal from Richard's Bay than from the Atlantic and Pacific basins," he added.
One analyst said a trading house was likely to be taking a loss on the physical coal in order to cover a much bigger position in the futures market, a strategy that traders say has been deployed regularly in recent weeks.
Observers say stockpiles of South African coal at the Richards Bay terminal will continue to grow in the coming weeks because of the likely play between the physical and derivatives markets.
Last month inventories at the South African port grew to 6 million tonnes from 4.6 million the previous month
South African coal futures for the first quarter of 2014 rose to $88.00, up $0.50 to its highest level since May.
South African coal traded at a $1-$2 premium to Australia's Newcastle benchmark, which on Monday traded below Richards Bay for the first time this year as traders spoke of ample supply in Asia.
Exports of South African coal to China have been on the wane because of higher freight prices, customs data showed, with shipments falling 20 percent in September compared with August.
Despite hopes that recovering economic growth in China would boost coal demand, its coal market will remain amply supplied into the fourth quarter and for winter, local media reported. The fundamentals were expected to remain much the same in 2014.
Coal for delivery into Antwerp, Rotterdam and Amsterdam (ARA) ports in December
ARA coal, which typically originates in Colombia, Russia or the United States, changed hands at $86.50 for January delivery, up $1.00.
API2 coal futures for 2014 delivery into Europe
German power prices
(Reporting by John McGarrity; editing by Jane Baird)
((john.mcgarrity@thomsonreuters.com)(+44 207 542 4779)(Reuters Messaging:)(john.mcgarrity.thomsonreuters.com@reuters.net))
Keywords: MARKETS COAL/PHYSICAL
