Stable demand, mine closures support Newcastle coal prices
Asia’s benchmark thermal coal price drifted marginally higher in the week to Thursday as Australia’s core markets withstood the impact of the coronavirus pandemic while mines in competing South Africa closed.
Broker GlobalCoal’s Newcastle index for high-grade (6,300 kcal/kg) Australian coal exports to Asia last stood USD 0.29 higher week on week, at USD 66.58/t.
Though toward the lower end of this year’s broad USD 65-75/t range, the index has managed to avoid the kinds of slumps seen in other coal markets and among other energy products.
By mid-March, Australia’s cumulative 2020 coal exports were only around 1% below 2019 volumes and well above those of the preceding four years, according to Commonwealth Bank estimates.
“A major reason that coal exports have held up to date is that Australia’s major coal trade partners have weathered the coronavirus outbreak well or have already dealt with the worst of the virus,” said CBA commodities analyst Vivek Dhar.
China, Japan, South Korea and Taiwan account for around 85% of Australia’s thermal coal exports. All those countries have either brought down their rate of new infections or contained the spread of the disease, which has climbed to almost half a million cases globally.
Chinese coal consumption has returned to about 94% of where it stood this time last year, according to estimates by Swiss bank UBS, some two months after officials took sweeping action to keep people at home.
Coal prices on China’s Zhengzhou exchange have continued to reach some of their lowest levels in at least two years. The benchmark May delivery contract was last seen at CNY 521.20/t (USD 73.52/t), down 1% on the week.
National Australia Bank commodities analyst Gerard Burg noted miners’ potential to “upgrade” coal blends for other markets, keeping thermal supply relatively tight.
“Compared to coking coal, thermal has trended a bit higher.”
Elsewhere, Indian energy demand appeared next in line to slump after the country introduced a nationwide lockdown affecting 1.3 billion people.
This comes as Indian power plant stocks reach some of their highest levels in at least eight years.
Inventories on Monday stood at 41.8m tonnes, enough to meet 24 days of power generation, according to stocks monitored by the country’s Central Electricity Authority.
Yet the virus is not just hitting demand.
South Africa is commencing a three-week lockdown from Thursday to limit the spread of Covid-19 in a move that will also halt resource extraction.
“Coal mining will be allowed to proceed but we expect this only to the extent that domestic consumption requires,” said UBS analyst Glyn Lawcock in a note to clients.
South Africa supplies roughly 8% of the world’s seaborn coal market.
“Increasingly, I think the market will pay attention to how this [virus] affects supply,” said Dhar.
Asia’s two biggest coal exporters – Indonesia and Australia – have recorded nearly 1,000 and 2,500 Covid-19 cases respectively, according to World Health Organization figures.
Indonesian President Joko Widodo this week told the Jakarta Post his country would not introduce lockdowns.
However, such measures would become more likely in time and may well affect both countries’ coal exports, said Dhar.
“Indonesia is the next one I would keep an eye on.”