Australia’s thermal coal exports in Dec’20 stood at 18.4 mn t against 14.6 mn t in November (up by 26% m-o-m), CoalMint’s vessel line up data revealed.
As Australia’s key export destinations like South Korea, Japan, and Taiwan braced for colder than usual winters and heavy snowfall, their demand for power in turn led to a rise in Australian thermal coal imports during the month as exports to the three major importing countries increased by 10%, 26%, and 76% respectively m-o-m basis.
Miscalculation in gas demand leads to increased coal requirement
Another factor that drove up these countries’ thermal coal imports is the increase in gas prices, which had touched record lows after the Covid19 outbreak last year.
However, market experts believe that more than cold weather miscalculations by key LNG buyers (S.Korea, Japan, and China) have played a larger role in driving up the gas prices in last two months.
When LNG spot prices were at $6.4 per mmBtu in late November, the importers in these countries signalled that they have sufficient LNG volumes for the upcoming winter. They also confirmed availability of plenty spot cargoes given the surplus LNG production, in case winters turned harsher. However, this comfort among buyers proved entirely misplaced and gas prices recorded a rise of 16% on month in December. The rise in gas prices can be attributed to a drastic rise in gas demand from China amid its ban on Australian thermal coal imports.
Indian demand grows steadily
India has emerged as a key importer of Australian thermal coal in 2020 amid a significant fall in Australian coal prices. Indian imports of Australian thermal coal exports recorded an increase of 8% m-o-m in December at 2.05 mn t. This is after an increase by 51% m-o-m in Nov’20 at 1.90 mn t. CoalMint learned from market sources that the Indian cement producers switched to Australian coal as South African coal was costlier by around $10-12/t.
In fact, this week, few deals for 5500 NAR grade Australian coal are heard to be concluded at $55/t, FoB Newcastle basis. Whereas, no major deals have been concluded for South African coal amid restricted supply as RBCT port is undergoing maintenance work.
Meanwhile, Pakistan has also become a preferred destination for Australian thermal coal as exports to the country surged by 98% m-o-m at 0.12 mn t in December, majorly driven by imports from cement sector.
Outlook
We expect Australian coal exports to rise amid continued cold weather across the Northern hemisphere, supply crunch in LNG, reduced nuclear availability in Japan and South Korea, and steady demand from India and Pakistan cement’s sector.
The only thing that may limit any dramatic rise in Australian coal exports is increased availability of fuel oil as utilities in South Korea and Japan have started turning to high-sulphur fuel oil for power generation as an alternative to tight LNG supplies.
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