Newcastle coal extends slump as Chinese appetite wanes
Asia’s benchmark thermal coal price tumbled a further 8% in the week to Thursday as limited energy demand from efforts to stop the coronavirus swelled a glut in the market.
Broker GlobalCoal last assessed its Newcastle index for high grade (6,300 kcal/kg) Australian coal exports at USD 55.08/t, down USD 4.81 compared to last Thursday and its lowest level since June 2016.
Newcastle is fetching a premium of nearly USD 12/t to GlobalCoal’s European benchmark. The spread has narrowed by USD 3 over the past week and is around a third below last year’s average.
The National Australia Bank has slashed its near-term price outlook for Newcastle coal by 15% to an average of USD 55/t for this quarter.
“Coal prices were comparatively elevated in March, as China’s Covid-19 containment measures restricted domestic supply. As China has commenced its process of reopening… prices for both coking and thermal coal have fallen,” the bank’s analysts said in a note.
“Weakness in global manufacturing and electricity demand – due to efforts to contain the spread of Covid-19 – are likely to see further softness in coal prices in the near term.”
Key coal importers in the region including South Korea, Japan and India have seen demand soften in recent weeks, according to ANZ bank.
A plunge in Chinese domestic prices was also raising the risk of interventions by the world’s biggest coal consumer, said the company’s commodities analyst Soni Kumari.
Chinese imbalance grows
Some Chinese coal traders were already experiencing customs difficulties at southern ports, though utilities were still able to clear volumes, said Eric Zeng, an analyst for Chinese consultancy Sxcoal.
A sharp recovery in production in March saw total output climb 2% year on year to roughly 830m tonnes in the first quarter, according to Chinese National Bureau of Statistics data.
Over the same period, however, Chinese thermal power production fell by 7% to roughly 1,175 TWh as coronavirus lockdowns dampened economic activity.
The resulting imbalance has swelled local coal stockpiles and slashed domestic prices to below the government’s desired band of CNY 500-570/t.
The most actively traded contract on the Zengzhou exchange last settled marginally higher on the week at CNY 489.40/t (USD 69.12/t). Benchmark prices have fallen 11% so far this year.
“The domestic price will drop further in the next month,” said Zeng.
Slower slide ahead
Prices were normally weaker around this time of year given the seasonal increase in hydropower production and limited temperature-driven demand. However, this year the period would coincide with strong domestic output and ongoing fears of a second wave of coronavirus infections, said Zeng.
“We are already doing something to cut part of our domestic supply and imports, so the price drop might not be as big as the previous month.”
Chinese coal prices had room to fall another CNY 10-20/t, Zeng said, adding this implied a “weak” outlook for the seaborne market.
“If domestic coal is weak, the restrictions on imports will continue.”
India’s lockdown was also sapping that country’s demand for Indonesian exports, said Kumari.
Indonesian low calorific coal (3,800) – a popular blending fuel in Asia – was down 8% on the week at USD 27.95/t, according to GlobalCoal’s index.
By Monday, utility stockpiles in the world’s second-biggest importer behind China had climbed to 49.3m tonnes or 29 days of supply, according to India’s Central Electricity Authority. This is their highest since at least 2012, though only marginally above last week’s level.
“All developments are painting a downbeat picture in the near term.”