The year 2022 has been a volatile one for the global thermal coal market, with prices touching their all-time highs in March before retreating but still remaining elevated compared to the previous year. The Russia-Ukraine war, subsequent change in trade dynamics, and supply disruptions in key coal producing countries like South Africa, Indonesia and Australia were the key factors responsible for such drastic movements in prices this year. So, how will H12023 (January-June) pan out for the thermal coal market?
Demand scenario
India, the key importer of thermal coal, has absorbed sizeable volumes from Russia this year which otherwise would have gone to Europe. However, demand fell in last two months of 2022 because of the unsuitability of Russian coal in the sponge iron sector and competitive prices of coal from other traditional suppliers such as Australia and Indonesia.
However, in 2023, India’s demand for imported thermal coal is expected to fall amid the government’s consistent efforts to increase reliance on domestic coal. While the country has achieved coal production of 850 mnt in 2022, the government is eyeing output of 1.2 billion tonne (bnt) next year.
India’s domestic production will be supported by the gradual commissioning of the captive and commercial coal mines auctioned by the government.
China has also cut down its imports this year and will continue to do so next year in line with its plan to achieve energy security and reduce imports. The country has churned out 4,450 mnt of coal this year, up 11% against 2021, and is expected to increase production further in 2023.
In fact, the country has expanded long-term supply contracts for 2023 to all the coal mines and has asked power utilities to source more of their demand through those contracts with the aim to ensure supplies and stablise prices.
Moreover, the country is already dealing with spiralling Covid cases which are expected to peak around March 2023. Till then industrial production and power demand is expected to remain sluggish and so also imported coal requirement.
As China buys more than 50% of its coal from Indonesia, amid tepid demand prices are expected to remain in check at least in H12023.
The EU countries have switched to coal-fired power generation in 2022 amid the surge in gas prices. German hard-coal-fired generation increased by 42% y-o-y in 2022. Many utilities that had planned to dismantle certain hard coal power plants in 2022–23 had to make a U-turn following the invasion of Ukraine.
The absence of Russian coal due to sanctions has forced EU countries to buy coal from alternate destinations like Australia, Colombia, and even South Africa. While the EU had built sufficient stocks of coal and gas for the winter, a scenario will emerge at some stage in H12023, as the EU needs to rebuild stocks for summer, and even more crucially for the winter of 2023.
Assuming that there is no softening in the EU’s sanctions against Russia, even in the case of a ceasefire in Ukraine or some negotiations over the conflict, the EU will have to import coal, which have hitherto been sold at a significant premium over Russian coal.
In case of other Asian countries like Pakistan, Vietnam, South Korea and Japan that are key buyers of imported coal, demand is likely to remain steady. Due to recessionary pressure in the global market, power demand especially from the industrial sector will remain under check and so also coal demand.
This means that although there would be sufficient demand from Europe, average demand in other countries is likely to weigh on average coal prices at least in H12023 as against 2022. This will be supported by increasing supplies from the top coal-producing nations. Indonesia has targeted 700 mnt of coal output in 2023. Only a significant rise in prices is likely in the case of unforeseen events in key coal exporting countries such as Indonesia, Australia, South Africa and the US.
Leave a Reply