Coal supply constraints may underpin price recovery – report
There is likely to be a 12m-tonne shortfall in global seaborne thermal coal supply this year, potentially triggering a recovery in prices, consultancy Perret Associates said on Thursday.
“As 2020 gets under way there are signs the support that international coal prices found at the tail end of last year could just be a foretaste of a market recovery in the year ahead,” the consultancy said in a report.
The front-year API 2 contract has risen more than 3% since the start of the year to USD 64.40/t, while the equivalent Ice Newcastle contract has grown 4% to nearly USD 76/t.
“Although demand looks set to remain largely subdued, tightening supply, especially in the Atlantic market, could boost prices after their heavy fall in 2019,” it added, noting the supply-demand balance this year would likely shift from a 28m tonnes surplus in 2019 to a shortage of 12m tonnes.
The 2019 surplus was mainly due to an estimated 32m-tonne plunge in imports last year to just 63.8m tonnes by EU-15 countries, according to Perret estimates.
EU-15 refers to EU member countries prior to the accession of 10 further members in 2004 and includes key importers, such as the Germany, UK, Spain, the Netherlands and Italy.
Perret forecasts that EU-15 imports would continue to fall over the coming years, reaching 53.8m tonnes in 2020 and 43.6m tonnes by 2025.
“In additional to environmental pressures, this decline in coal use owes much to highly competitive gas prices, due largely to a glut of LNG deliveries, which could result in coal-to-gas switching to continue into 2021 and only the most efficient coal power stations remaining in operation.”
However, offsetting the structural decline in European demand, India and Asia-Pacific imports were expected to jump 2% on the year to 858.7m tonnes in 2020, and to continue rising until 2022, the consultancy said.
“Northeast Asian demand should remain capped, due to stricter environmental regulation as well as market pressures, and Chinese imports are also projected to fall by 13m tonnes in 2020 to 214.1m tonnes,” it added.
But Perret Associates anticipated Indian imports would rise strongly to 184.1m tonnes this year, on the back of restocking activity following last year’s shortfall in domestic production, as well as renewed economic growth.
“The surge in Vietnamese demand also looks set to continue, albeit at a more modest rate,” it added.
“Taken altogether, [we see] world seaborne imports stabilising in 2020 at just over 1bn tonnes, up 10m tonnes [year on year], after an estimated 30m tonne plunge in 2019, on the back of weak European demand.”
However, the research firm expected the biggest shift to be on the supply side, with total steam coal exports potentially falling by 30m tonnes in 2020.
“This would be mainly down to lower US and Russian exports, as producers in those countries are forced to finally throw in the towel after operating well below their cash cost of production for much of 2019,” it noted.
Indonesian exports were expected to remain flat this year, amid “renewed rumblings” from the Indonesian government about capping output to support international prices, it said.
Perret also saw little upside in exports from the other main suppliers – Australia, South Africa and Colombia.