In a further setback to Australian thermal coal to demand and prices in the upcoming winter months, its key importer, South Korea plans to suspend as many coal-fired units as possible and impose an 80% cap on output from other operational units during December-March.
This is consistent with the country’s environmental policy last year, where it temporarily shut down up to a quarter of its coal-fired power plants and capped output of other plants at 80%, in an attempt to combat dangerously high levels of fine dust pollution.
These measures last year had resulted in country’s coal-power generation to fall by 14% y-o-y to 67.3T MWh and imports to decrease by 9% y-o-y to 31.3 mn t during Dec’19-Mar’20.
Although this is a draft proposal and final one would be announced by November end, availability of nuclear energy and competitive gas prices would definitely encourage the South Korean government to reduce coal usage during winters.
South Korea majorly imports thermal coal from Australia. Between Jan-Sep’20, country imported about 71.2 mn t of thermal coal with 25.6 mn t (about 36%) from Australia. This is down by 10% y-o-y basis.
Chinese ban on Australian coal
Australian coal is already facing restrictions from its top importer, China, which has given a verbal notice to the utilities and steel mills to stop importing Australian coal. This had resulted in Australian coal (5500 NAR) prices falling to as low as $35/t, FoB Newcastle.
While Australian coal has found some support of late amid increased demand from India and Pakistan (primarily from the cement sector) that pushed up the prices to $41/t FoB in mid-October. The constantly changing demand dynamics in China and South Korea have once again made thermal coal prices to fall this month with offers for 5500 NAR coal being heard at FoB $36/t for November end loading.
Outlook ahead
Factors such as cheap gas prices, nuclear availability and limited coal usage by South Korea and Japan would definitely restrict any possible surge in Australian coal prices.
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