Coal Imports – The Asian Scenario

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The Asian benchmark thermal coal prices have pushed to their highest levels since 2016, fueled by demand in China and loading delays in Indonesia that have ramped up shipping congestion outside major coal ports. Besides, the spot cargo prices for Australian Newcastle coal have risen nearly 15 percent from lows in late November after China loosened import restrictions to help meet a winter fuel shortage.

“The reason behind relaxing the restrictions was to ensure coal supplies at utilities, as some coal-fired power plants in eastern regions have been operating with minimum coal inventories,” said Zhang Xiaojin, coal analyst at Everbright Futures. The move by the National Energy Administration also followed an ambitious gasification program that moved too many households and factories from coal to gas for its utilities to keep up.

The Indian Coal Import Scenario

Traders said that strong orders from India have also supported prices, which hit USD 105.65 per ton this month, the highest since November 2016. “India is buying throughout Q1, which means the shortage is not expected to end any time soon,” said a coal trader with a major trading house.

India generates four-fifths of its power generation through coal-fired plants and imports the commodity from countries such as Australia, Indonesia and South Africa. Coal imports, however, have fallen for the past two fiscal years due to increasing local supply.

Coking coal imports into India, Japan and Korea are seen growing in the low to mid-single digits in 2018, absorbing increased Australian production and resulting in displacement of US swing production. China’s efforts to cut air pollution favour premium coal grades. Fitch’s price assumption for hard coking coal in 2018 is USD 135/tonne compared to an average of around USD 175/t in 2017.

“Profits and cash flows for metallurgical coal producers surged following the implementation of China’s 276-day rule and have supported investments to increase production from existing mines,” Fitch observes. “With Fitch’s expectation that long-term prices moderate to USD 110/tonne, some US production capacity is likely to exit the seaborne market.”

Experts’ Predictions

Fitch expects coking coal prices to continue to moderate in 2018, as supply grows due to the relaxation of China’s 276-day rule, the recovery from Cyclone Debby, and other producers’ additional supply.

“Demand in 2018 will be influenced by environmentally led winter production cuts to Chinese steel production from November 2017 through to March 2018, and slower steel demand from the property sector,” Fitch says in a report sent to Kallanish. This is expected to result in Chinese coking coal imports in 2018 reverting to 2016 levels.

Citing CRU forecasts, Fitch says global coking coal consumption should rise to 1.13 billion tonnes in 2020 from 1.12 billion tonnes in 2017. Australian coking coal exports should rise to 203 million tonnes from 181mt, while Chinese coking coal production should fall to 656mt from 666mt.

Concerns Pertaining to Coal Shipping

Bottlenecks at import terminals across China and delays at loading ports in Indonesia’s Kalimantan island, one of the world’s biggest thermal coal mining regions have added to the tighter market.

“The trouble to load in Kalimantan is a result of huge rainfalls. This has triggered replacement orders for supplies from Newcastle (Australia), pushing up prices there,” said a second coal trader, speaking on condition of anonymity as he was not allowed to comment on trading activity.

The congestion started in late 2017, and is getting worse. Shipping data in Thomson Reuters Eikon shows around 100 large dry-bulk ships waiting to load coal off the coast of Kalimantan, Indonesia, most of them at Samarinda and Taboneo. Some ships have been waiting since late October.

Even more ships are waiting to unload coal in China, where between 400 and 500 large dry-bulk carriers are waiting outside Shanghai/Ningbo and in the Gulf of Zhili, serving the ports of Tianjin, Coafeidian, Qinhuangdao and Bayuquan. That’s up from around 300 ships waiting outside both Chinese and Australian ports to load or deliver.

High Hopes for a Good Year for Coal Shipping

In the longer term, prices should ease as China’s import curbs are potentially restored, heading to USD 69 a ton by 2021 for Newcastle. In general, the Asian demand growth driver is shifting away from China toward India and Southeast Asia, including Vietnam, where strong demand growth would require investment into coal.

Analysts expect tight market conditions to last until the Chinese New Year, which starts in February. “Congestion and supply-side delays have sent prices higher. We see seaborne coal price support for the winter through to the Chinese New Year, especially from China and India,” said Shirley Zhang, principal analyst for Asian coal markets at energy consultancy Wood Mackenzie.

Sea News Feature, February 2