This week started with the formal announcement by China banning Australian coal till an indefinite period.
Although there was an unofficial ban on Australian coal since the beginning of H2 CY20, China’s National Development Reform Commission (NDRC) met 10 major power companies over the weekend and granted approval for import of coal without clearance restrictions, except from Australia.
With this official ban kicking in, it was anticipated that Australian thermal coal prices may once again see some correction. However, quite the opposite has actually happened.
The severe northern hemisphere winter that has intensified restocking demand in China amid absence of sufficient domestic coal production has compelled the country to import coal from countries other than Australia such as Indonesia, Russia, Mongolia and South Africa.
As cargoes from these countries are being diverted to China, Australian-origin coal is enjoying increased demand from markets like India, Pakistan and Vietnam resulting in prices gaining traction.
Australian 5500 NAR coal to India is currently offered at $55/t, FoB basis (up by 12% w-o-w and by 38% m-o-m) for Jan’20 shipments. The freight rate for panamax vessels to the Indian east coast is assessed at $15/t.
However, few distressed sale offers have also been heard for 5500 NAR Australian coal at $67-68/t, CFR east coast for Jan’20 shipments.
U.S. pet coke vs Australian coal
Australian coal can be an alternative to pet coke for Indian cement manufacturers. But switching from pet coke to coal hikes the input cost considerably. This is because pet coke has a higher gross calorific value (GCV) compared to thermal coal and thus its volume requirement is lesser.
However, as Australian coal prices have touched new lows this year, opting for the same has become financially viable for cement manufacturers in India. But with the recent upturn in coal prices, it is important to understand what the Indian cement sector would actually prefer.
As per CoalMint analysis, the price for US origin 7500 GCV pet coke is currently heard at $100/t, CFR India, while that of 5500 NAR Australian thermal coal is $70/t.
Now if we compare the landed cost of US pet coke versus Australian coal (in per CV terms), the former is cheaper against the latter by 2% on a per tonne basis. This means that any further rise in Australian thermal coal prices will dissuade Indian cement producers from making fresh purchases, preferring pet coke until prices see a significant surge and there is a wide disparity between the two.
Weighing the probable
If demand falls in India, Australian sellers may have to either push cargoes to Pakistan, Vietnam, and key consumer Japan, or curb supplies in order to support prices.
In fact, market reports suggest that several mines in Australia are looking to extend their usual shutdowns lasting a few days over Christmas and the New Year because of growing stocks of thermal and coking coal in Australia.
Outlook
CoalMint predicts that going ahead Australian coal prices are expected to either inch up or remain stable. Any significant fall in prices looks unlikely for now.
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