Global thermal coal demand likely to outstrip supply in H2 2018: Citi
Global seaborne thermal coal supply is expected to fall short of expected demand in the second half of this year amid falling capital expenditures at key miners, Citi analysts said in a note Monday.
Citi analysts expect global seaborne thermal coal supply to be 477 million mt in H2 2018, about 31 million mt short of meeting global demand of 508 million mt.
“The supply side discipline by the miners has resulted in favorable supply/demand balances and has kept coal prices higher for longer in our view,” the analysts said. “Thermal coal has rallied sharply since mid-April, and the prices remain elevated.”
The 7-45 day price of Newcastle 6,300 kcal/kg GAR has jumped 25% since April to be assessed Friday at $116.70/mt FOB, S&P Global Platts data showed.
On the supply side, steam coal production has not been meeting expectations for the past few years in general, along with a decline in capital expenditures in the global coal industry, the analysts said.
“Coal capex is down by about 80% from the peak of $10 billion in 2012 to $2.2 billion today for key global coal miners,” they added.
Citi expects Indonesian steam coal exports to reach 165.4 million mt in the second half of the year, down from 168.7 million mt in the first half. India, Japan and China are expected to drive demand in the second half of the year, the analysts said.
India is expected to import 82.6 million mt in H2 2018, up from 60.9 million mt in the first half, the analysts noted.
Last week, the Indian government asked its utilities to start importing coal amid shortage of domestic supply and rising demand for coal-fired electricity.
Meanwhile, China is expected to import 66.9 million mt of steam coal in the second half of 2018, up 16.8 million mt from H1 2018. Japan’s imports are forecast at 77.3 million mt in H2 2018, up 4.3 million mt from the first half.
Overall, Citi expects global supply of 941 million mt to likely meet the annual demand this year but the Asian thermal coal market is expected to remain tight in the upcoming six months.