The fluctuations in global thermal coal prices seem unlikely to lose momentum as these rates, which saw an average rise of $30/tonne (t) till the last week, have corrected down by $40/t this week.
The fall, this time, comes against the backdrop of the spread of the new Covid-19 variant called Omicron, that has wreaked havoc across Europe and in a few Asian countries, which resulted in a sell-off across commodities.
Price scenario of key-origin coal
- South African RB1 (6000 NAR) grade prices fell sharply to $132/t, down 18% from their recent peak of $161.3/t on 25 Nov’21. A sharp fall, however, was limited as the current stock level at RBCT Port was at 2.3 mn t, sharply lower than the average 5 mn t levels seen in the past months.
- Newcastle Australian (6000 NAR) prices also declined to $157.8/t, down by 7% from their peak of $169/t last week despite supply disruptions due to floods there.
- The benchmark price for 6000 NAR coal imported to Northwest Europe corrected by 20% from their peak on 25 Nov’21 and are currently assessed at $125/t on CIF basis.
- It is only Indonesian coal prices that are being supported by supply constraints amidst heavy rains there and unavailability of stock in the spot market as well as strong winter restocking demand from Chinese buyers.
Rising virus scare
Since its detection, the Omicron strain has been reported in a dozen countries, including the United Kingdom, Europe, and Japan.
Concerns surrounding the surging number of cases may result in more vessel congestion at ports, delay in loading, slowdown in coal production due to infection in work force and lockdown at major cities.
According to market participants, the rise in Omicron cases and subsequent chances of lockdown may weigh on thermal coal demand in Europe.
China’s NDRC makes effort to contain price rally
China’s economic planner, NDRC’s plans to introduce a price mechanism to keep domestic coal prices within a reasonable range have also supported the fall in global prices.
As per market participants, the thermal coal prices range set by the state planner is likely to be remarkably lower than the current level as many power plants in the country operate at losses.
Owing to this development, the Chinese power utilities that had recently began issuing tenders in Indonesia were heard negotiating deals or bidding at lower level.
Coal production in China picked up recently with the average daily coal output being reported at around 12 mn t which is higher by 2 mn t compared to the country’s daily consumption levels.
Short-term outlook
CoalMint believes, thermal coal prices are likely to remain under pressure in the short-run in case the Omicron scare aggravates and countries across the globe impose lockdown measures to contain the virus spread.
Also, introduction of a price mechanism by NDRC and increased coal production in the country are also seen resulting in reduced imported coal demand, supporting the fall in global thermal coal prices.
However, the only factor that can once again support global coal prices is the rise in gas prices, as coal is used as an alternative to gas for power generation in many countries.
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