The rally in the Indonesian Coal Index (ICI) for mid-CV 4,200 GAR grade coal paused last week as Chinese traders were heard waiting for further cues after China’s top economic planner hinted at easing supply this month onwards.
Price for the 4,200 GAR grade fell marginally by $0.6/t w-o-w to $64/t, FoB, pausing a rally of over three months. Price for the 5,000 GAR was at $89.5/t FOB, up by $0.6/t w-o-w.
Prices for high-CV Indonesian coal, however, continued to rise as the same for 5,800 GAR and 6,500 GAR grades rose by $2/t w-o-w to $102.34/t and $112.07/t, FOB, on reduced supply of higher-grade coal globally.
Chinese buyers adopt wait-and-watch stance
According to market participants, Chinese coal buyers have moved to the sidelines amid speculation of price correction in domestic thermal coal. It is being anticipated that the country’s coal production would recover this month as stringent safety inspections are expected to ease after the Communist Party of China’s 100-year anniversary celebrations on 1 Jul’21.
As per industry reports, high-quality advanced mining capacities are also being released into the system at an accelerated pace. Compliant mines are subsequently able to commence operation faster and are also getting support to expand capacity if relevant requirements are achieved.
Along with this, hydropower generation is also expected to improve in Jul-Aug’21 amid expectations of good summer rains, giving respite to increased coal-fired thermal power demand.
China’s power plant stockpiles are heard to have declined by 25% y-o-y, while coal-derived electricity production has risen by around 10% y-o-y this quarter. Daily average supply of power generation from coal has risen by 10% since late-May and a 2 mn t growth in coal inventory at key power plants nationwide against May-end.
Indian buyers stay away
Amid increased cost of raw material and weak sale volumes, industries such as steel and brick manufacturing, tiles and cement are heard to have reduced their capacity utilisation, which has impacted their thermal coal demand.
“Many of the independent firms (of steel, tiles, brick, and textile) have either shut down, or are running at 50% capacity as there is a sharp mismatch between costing and profitability. As imported coal prices have risen sharply, these firms are using more of domestic coal to run their boilers, because closing down a boiler is more expensive,” a Surat-based trader said.
Demand for relatively cheap low-CV coal however, remains strong as these industries have been purchasing low-CV Indonesian coal grade for blending purpose. On the other hand, stock availability of high-CV Indonesian coal remains tight due to China’s buying interest since the last two months. Most of the Indian coal users have shifted to using domestic coal, or have increased blending to continue operations.
Stock availability of 4,200 GAR and 5,000 GAR coal was heard to be very tight at Indian ports with portside prices as high as INR 5,800/t, up 12% m-o-m and INR 7,000/t ex-Kandla, up 8% m-o-m respectively in case of advance payments (prices exclude cess and GST).
The current freight for Supramax vessels between Indonesia and India remained firm at $27/t which was at $11/t in Jan’21.
Stock with utilities: Indian power utilities have thermal coal stock as on 30 Jun’21 of 28.7 mn t which is sufficient to last for 22 days, as per National Power Plant data. Last week, thermal coal stock with power utilities was at 30.3 mn t.
What lies ahead?
While China’s coal-supply is expected to ease in July, the country faces the risk of extreme weather events such as flooding and heat waves over the peak July-August summer period, according to the China Meteorological Administration (CMA). Such weather trends raise the potential for disruptions in domestic coal output, hydropower generation and a boost to air-conditioning demand.
On the supply-side, the current rise in Covid-19 cases in Indonesia and subsequent lockdown is not likely to have any major impact on coal supply from the country as mining communities from Sumatra and Kalimantan are said to have lesser exposure to Covid in comparison to the cities.
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