Over last few months, thermal coal prices of key origins like Indonesia, South Africa, Australia, and Russia have recorded a significant jump, raising concerns about how long this trend will last.
Let us analyse the factors behind this trend and the price outlook in the near term:
Changed global thermal coal trade dynamics
When, China slapped an unofficial ban on Australian coal towards the latter half of 2020, , it was little known then that this decision would completely change the global trade dynamics.
Post this decision, China looked for alternatives in Indonesia to satisfy its large appetite for coal, making Indonesian coal less available to other key buyers like India, South Korea, Japan, and Pakistan.
Similarly, Australia, which hardly had any presence in India, Pakistan and Vietnam with its thermal coal, has become a major exporter of the material to these countries in the last six months.
Subsequent escalation in thermal coal prices
China’s increased buying of Indonesian coal pushed up prices of the material to new highs. The popular 4,200 GAR grade recently touched $62/t from around $43/t in the first week of Apr’21.
China is now even buying South African coal, despite the issue of trace elements, making it pricier by another $18/t from the $89/t seen in the first week of April.
India, a key buyer of South African coal, has stepped back from making any major bookings this year due to escalated freight rates. Consequently, its monthly average imports from South Africa have dropped by 28% in 2021 against the pre-pandemic levels.
Australian thermal coal prices have jumped by $20/t since Apr’21 and are currently trending at $74/t due to support from the ex-China markets.
India, which saw minimum imports of Australian thermal coal till the first half of 2020, is now buying an average 2 million tonnes (mn t) per month since Nov’20. Pakistan, that had zero Australian coal imports till Oct’20 is receiving 2.8 mn t of the material per month since Nov’21.
South Korea, Japan, and Taiwan have also increased their buying of Australian coal, especially since the last two months as power utilities there have issued new tenders amid warmer summers and rising oil-linked LNG prices.
Against the backdrop of changed dynamics and ongoing supply constraints of Colombian coal, Russian thermal coal has found increased presence in China, Taiwan and Turkey, especially since 2020. These markets have supported its prices too.
How long will this rally last?
Any respite in thermal coal prices globally seems unlikely till August this year due to the following reasons:
• Peak summer demand in China, South Korea, Japan, and Taiwan during Jul-Aug’21.
• Safety inspection checks at coal mines in China that would restrict domestic coal production there.
• Coal supply constraints in Indonesia due to rains and in South Africa due to persistent Transnet’s rail issues.
• Chinese ban on Australian coal would continue due to escalated political tensions between the two.
• Increased demand for Australian coal from Pakistan and Vietnam to meet their power demand amidst reduced supply of Indonesian and South African coal.
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