Date | Jul 26, 2016:

In a reversal from the decline since 2011, thermal coal prices have shown some stability in 2016. The price of the benchmark Australian Newcastle 6000 kcal/kg (FOB) thermal coal went up from $49 to about $60, per tonne during January-July 2016. The Chinese government’s clamp-down on domestic coal mining has boosted the country’s import demand.

Rainfall-related disruptions in supplies from leading exporters, Australia and Indonesia, too, have lent support to prices. Only time will tell whether the recovery will sustain.

Until now
Over the past few years, excess supply of coal in the global market amid softening import demand from China, the world’s largest consumer, has hurt prices. Thermal coal is used primarily for electricity generation.

A slowdown in economic growth and a shift towards clean energy resources as part of the government’s efforts to curb pollution, is believed to have led to a decline in Chinese coal consumption since 2014. At the same time, an improvement in rail infrastructure and increasing domestic coal output from the surplus capacity-ridden mining industry has boosted domestic coal supply, pushing down global coal prices.

The spot coal (5,500 kcal/kg) price at the Qinhuangdao port in China has more than halved from $99 in early 2014 to $62, per tonne now.

This has impacted Chinese import demand, thereby depressing global prices. According to the latest Resources and Energy Quarterly from the Office of the Chief Economist, Department of Industry, Innovation and Science, Government of Australia, China’s thermal coal imports have been declining since early 2014.

Thermal (non-coking) coal imports by India, one of the world’s largest importers, too have reduced. Rising output from Coal India has made this possible. India imported 129 million tonnes of coal in 2015-16 (April-January), compared to 168 million tonnes in 2014-15 (full year). While, on the supply side, supplies from leading exporters have fallen or at best been flat since 2014, the balance in world thermal coal trade has tilted towards a surplus. This has kept coal prices under pressure — from $71 per tonne in 2014, Australian coal prices have slipped to $52, now.

Shipments from Indonesia, the world’s largest exporter, have been declining since 2014.

According to the Australian government’s Resources and Energy Quarterly, weaker Chinese demand, lower output and a stricter export licensing regime to conserve coal for domestic use, have been key factors. Thermal coal exports from Australia, the second largest exporter, too remained unchanged at around 200 million tonnes in 2015.

What will happen?
The Chinese government’s directive to domestic coal mines to bring down their working days in a year from 330 to 276 and its plan to shut down 1,000 old mines this year should help keep the country’s domestic coal production on a short leash. This should spur Chinese demand for coal imports.

On the other hand, in India, increasing production by Coal India, in combination with a modest rise in domestic coal consumption, should keep import demand in check.

With the poor finances of the state distribution utilities constraining their purchases, power generation companies have been operating below capacity.

Nonetheless, this may not necessarily mean lower coal prices for domestic power companies. Coal India hiked prices by an average 6 per cent with effect from May 30, 2016.

On the supply front, exports from both Australia and Indonesia are predicted to fall.

According to the Office of the Chief Economist, Department of Industry, Innovation and Science, Government of Australia, Indonesian coal exports are expected to decline by 11 per cent to 271 million tonnes in 2017.

This will largely be on account of lower production as high-cost mines shut down because of low prices. The doubling of India’s clean energy cess on coal early this year, too, will be a dampener on exports. In Australia, too, halt in operations at several mines is likely to bring down production and exports. Heavy rains induced by the likely occurrence of La Nina may also adversely affect mine operations.

So, what will matter is how the Chinese and the Indian demand plays out against cutback in supply from Indonesia and Australia.

(Source: The Hindu Business Line)

(Source: http://www.hellenicshippingnews.com/)