There seems to be no halt in the rally of Indonesian thermal coal prices since past five weeks as ICI4 index’s 4200 GAR prices have touched the highs of $52.2/t on FoB basis, up against $39.2/t, a month back.
Amid ban on Australian coal and domestic coal shortage, Chinese buyers are booking Indonesian coal in huge quantities, supporting its prices. Whereas, demand from India that has been a key importer of Indonesian coal after China, has plunged dramatically due to the key factors mentioned below:
Increased freights:
Escalated freights since mid-February sparked by a combination of factors, including soaring demand amid post-pandemic stimulus packages by developed nations, saturated ports, and too few ships, dockworkers and truckers, have made Indian importers to move to the sidelines.
CoalMint’s vessel line-up reveals about 1.4 mn t of Indonesian coal arriving at Indian ports in next 12 days, which is quite less than the usual quantity of 2.5-3 mn t that comes from Indonesia in the time span of ten days.
Surging COVID cases
The sudden spurt in COVID cases in India and the resulting restrictions have impacted the plant operations across various sectors. According to market participants, buyers of Indonesian coal such chemicals, textile, brick-klin, are suffering from labour shortage and are working at reduced capacity, resulting in reduced thermal coal demand.
Increased availability of domestic coal
Coal buyers from power sector are opting for domestic coal amid escalated Indonesian coal prices. CIL’s coal dispatch has increased by a whopping 38% y-o-y to 54.13 mn t in Apr ’21 compared with 39.09 mn t in April last year. There is reduced availability of coal stock at power plants at 23.9 mn t towards the end of April, which is sufficient only for 12 days of power generation.
The portside prices for 4200 GAR Indonesian coal at Kandla are heard at INR 5250/t and for 5100 GAR is at INR 6500/t.
What Is propelling Chinese coal demand?
While Chinese downstream demand remains strong with several Chinese-utility tenders being awarded, domestic coal supply in China remains tight due to increased safety inspections at mines following recent accidents.
Also, rainy season is still going on in Indonesia and there is scarce availability of floating cranes required for loading activities, resulting in longer waiting period and high demurrage charges, being reflected in increased prices.
The domestic price for 5500 kcal/kg NAR grade thermal coal in China has moved up by 40% in last one month and is currently being heard at RMB 810/t ($125/t) whereas Indonesian 5500 GAR grade coal is available at $88/t, FoB basis for June loading. The thermal coal stock at China’s key port, Qinhuangdao moved up by 0.06 mn t w-o-w basis and stood at 4.39 mn t, however it is still less than the usual average of 5.5-6 mn t.
Short-term outlook
Indonesian thermal coal prices are anticipated to remain at elevated levels as China’s electricity consumption is expected to rise in the upcoming months. According to the country’s main supplier the State Grid Corporation of China (SGCC), China’s power consumption would grow by 9% y-o-y basis during Apr-Jun’21, as the economic recovery from the impact of the Covid-19 pandemic gathers momentum.
While this would continue to support demand from China, Indian demand is expected to remain at lower ebb even in the ongoing coal restocking season, due to surging COVID cases and potential lockdowns.
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