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Tighter supply lifts Newcastle coal, though outlook softens

Mining disruptions in South Africa and recovering Chinese demand supported the seaborne coal market in Asia this week as the Newcastle index climbed 4%, though coronavirus-related downside risks loomed, observers said.

Global Coal’s reference price for high grade (6,300 kcal/kg) Australian thermal coal exports to Asia last stood at USD 69.19/t, up USD 2.61 on the week. It is now broadly in the middle of this year’s USD 65-75/t trading range.

South Africa’s efforts to restrict the spread of the coronavirus have curbed the country’s coal production, limiting its ability to supply markets in India and Europe.

The country’s Richards Bay index has surged by USD 17/t in the past week to reach USD 78.09/t with analysts at Swiss bank UBS attributing much of the present support for Newcastle to South African lockdowns.

Mining company Anglo American – which dug up 18m tonnes of coal in South Africa in 2019 – has trimmed its expected global production this year by as much as 8%, in part due to the impacts of the pandemic sweeping the world.

Chinese recovery
Chinese economic activity has improved substantially as the country emerges from relatively successful measures to bring down its rate of new Covid-19 infections.

Purchasing managers’ indices soared in March, while energy demand climbed consistently.

Yet China’s recovery in output continued to outstrip its recovery in consumption, with mounting implications for prices, analysts noted.

“Our supply capacity has fully recovered but our demand stays at comparatively low level – it is 5-10% [lower],” said sxcoal analyst Zeng Hao.

China was presently importing about the same amount of coal as it was this time last year thanks to attractive international prices relative to domestic supply, Zeng said.

However, domestic prices were falling rapidly and approaching levels that might prompt the central government to restrict imports in a bid to support Chinese miners’ revenues, he added.

China’s National Development and Reform Commission aims to keep the price of coal within a band of around CNY 500-570/t to balance the interests of its miners with those of power consumers.

Coal for September delivery, the most actively traded contract on China’s Zhengzhou exchange, was last seen 3% lower on the week at CNY 499.60/t (USD 70.38/t).

Supply-demand imbalances
Though inventories had been drawn down over the past 10 days, stocks at coastal plants were still 13% above last year’s levels, with local coal prices also their lowest since 2016, Zeng said.

Import restrictions would disrupt a major source of demand in the seaborne market – China accounts for nearly a fifth of the seaborne market – just as other areas of the world see energy demand fall due to coronavirus measures.

“We see little room for a strong recovery, given the increasing supply overhang,” said analysts at Australia’s ANZ bank in a note.

Indian power plant stocks surged 7% in the past week to hit some of their highest levels in at least eight years.

As of Tuesday they stood at 45m tonnes, enough to meet 28 days of power generation, according to inventories monitored by the country’s Central Electricity Authority.

The country also entered a lockdown last week. The government has declared coal supply an essential service, though efforts to halt the spread of the coronavirus are also expected to slash energy demand in a country responsible for 13% of seaborne coal imports.

“The slowdown in India allowed some cargoes to be redirected in the Pacific and combined with healthy domestic coal supply, ended up limiting the upside,” said one European coal analyst.
Source: Montel

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