Despite the slight easing of thermal coal prices in the recent weeks surrounding weak buying appetite from China, global prices continue to trade over 50% elevated levels since January 2022.
The elevated prices have come in the backdrop of logistic constraints, adverse weather conditions, and Europe’s strong demand for seeking alternative supplies post sanctions on Russia.
Price trend
*Price in FOB ($/t)
Supply woes by key exporters
This year has been quite challenging for key thermal coal exporters like South Africa, Indonesia, Australia already reeling under reduced output.
Russian invasion of Ukraine in late February and the subsequent sanctions by US, EU, Japan and several other countries has further added to the woes, exerting pressure on coal exporting countries to meet the rising global demand.
Sky-high LNG prices and crude oil prices have also boosted demand for coal as power generation via coal-fired power plants are much economical in the current market scenario as against LNG and oil imports.
However, heavy rainfall in Indonesia, recent floods in Newcastle Australia, and logistic constraints in South Africa’s Richards Bay Coal Terminal have largely kept exports under pressure since the beginning of this year, keeping coal prices elevated.
How trade dynamics played out in 2022?
The resilient thermal coal prices and Russia-Ukraine war have resulted in a major shift in trade dynamics of Asia and Europe.
In Asia, Indian buyers largely kept to low-CV coal grade procurement from Indonesia and reduced imports from South Africa and Australia (amid escalated prices). Japanese and Korean traders, on the other hand, procured more of high CV Australian and Indonesian coal as an alternative to Russian coal due to sanctions.
Chinese traders were in the favor of buying cheaper Russian coal at discounts and also focussed more on their domestic coal supply following record output in Jan-March period and NDRC’s rising scrutiny to keep domestic coal prices within a reasonable range.
Meanwhile, higher energy cost has resulted in an economic crisis in Sri Lanka, a drastic decline in imports in Bangladesh, and Pakistan turning to Afghanistan and Tajikistan to replace sky-high Australian and South African coal imports.
In case of European countries, Russia supplied about 65% of its thermal coal requirements last year and sanctions on Russia have made them look for alternates especially Australian and South African, resulting in higher shipments from these countries.
How H2 2022 may pan out?
With the approaching monsoon season in key coal exporting countries, global thermal coal supply is likely to fall short of demand in the second half of the year, keeping prices elevated.
With regard to trade flow, the majority of Australian and South African coal is seen flowing into Europe, Korea and Japan, while Indonesian coal is likely to be seen flowing majorly into India and Pakistan. Russian supplies, on the other hand, are seen gaining prominence in China and finding new homes in India.
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