Where are global thermal coal prices headed?

After having seen a rise of over 150% between Jan to mid-Oct’21, global thermal coal prices have cooled off significantly in last 20 days.

Interestingly, all origin thermal coal prices have seen a correction of $75-100/tonne (t) from their highs in mid-October barring South African coal that has shown a fluctuating trend.

South African RB1 (6000 NAR) grade prices that rose by 64% between Jan to mid-October fell sharply to $130/t as on 2 Nov’21, before rebounding to $140/t as on 10 Nov’21.

These fluctuations can be attributed to reduced coal stock at S.Africa’s Richards Bay Port of 2.26 million tonnes (mn t) against the average stock of 5 mn t. CoalMint has learnt from its sources that there has been increased cases of cable thefts and vandalism at Transnet rail line, hampering the coal supplies from mines to the port and subsequently impacting its availability there.

Correction in other-origin thermal coal prices

This price correction in global thermal coal prices has come following the Chinese government’s intervention in regards to stabilise the country’s domestic prices.

The worsening energy crisis in China had not only forced several provinces to cut down power consumption and factories to suspend operations, but also raised speculative trading activity to hoard coal ahead of the winter season. As a result, the National Development Reform Commission (NDRC) brought in measures to bring down prices and boost output.

Thermal coal futures in the country also have plunged by 54% to RMB 920/t ($143.79/t) on the Zhengzhou Commodity Exchange towards the month-end from their historical high of RMB 1,908 /t ($298/t) on 19 Oct’21.

Current supply scenario

Coal production in Indonesia is witnessing considerable disruption due to heavy rains alongside the miners’ struggle to meet their domestic market obligation.  According to market participants, the spot cargoes are booked till December and supplies are likely to improve by early January.

In case of Australian coal, bids are few and far between, with buyers looking for the right opportunity before concluding a deal, as prices fell sharply. Russian coal prices are also under pressure, as Chinese demand for coal diminished after the price caps were imposed.

Demand situation in key Asian countries

Chinese traders over the last two weeks have largely kept to the sidelines and avoided any major bookings from Indonesia or other origins as they are waiting for the prices to stabilise, an Indonesia-based trader said.  With the fall in domestic coal prices in China last month, import demand has slowed down considerably.

With the rise in LNG supply, coal demand in Japan and South Korea has also eased. In case of India, the domestic supplies have also increased as Coal India’s production have risen by 23% m-o-m in October with auctions also being restarted for the non-power sector.

Outlook

CoalMint believes that global thermal coal prices are likely to remain under pressure in the near term with supply situation easing in China. The only factor that could once again support coal prices is the La Nina phenomenon (more than expected winters) in Asian countries expected in Jan-Feb’22.