Thermal coal demand is declining globally and forcing cutbacks of imports and production, driven by lower power-sector coal demand resulting from the coronavirus pandemic, analysts said.
“After some delays compared with other commodities, the steam coal market seems to finally grasp the magnitude of the impact of the Covid-19 on the international demand,” Perret Associates said in a report published Tuesday.
Perret added that “Chinese buyers are now in the driving seat, and we think they use it to reduce their imports and put more pressure on prices in Q2 20.”
China further restricted coal imports in Guangxi, S&P Global Platts reported April 8, and Platts Analytics “[expects] China will implement import port quotas, limiting seaborne thermal coal imports for the remainder of 2020,” they wrote in a report released Tuesday.
In China, “even though it might make sense for the Chinese to import material from the economics perspective, the authorities are keen to support domestic coal producers’ production margins,” the Perret report said. “They seem to have been exerting influence to encourage utilities to purchase domestic material as a result, of which supply is abundant.”
Despite the push for domestic coal, Chinese domestic prices have continued dropping back as supply exceeds demand, Perret said.
The Perret report also added that reports of distressed cargoes heading to China and India have been heard after cancellations and sharply cut demand in India following the coronavirus pandemic-related lockdown.
In India, Perret added, “it now seems likely that the restrictions are set to be extended.”
Overall, “the import demand is worsening in the medium term from significant countries such as India and Japan,” Perret said. “We remain negative across the board.”
In the EU, coal demand is being hampered by the combined impact of stronger carbon price, weak electricity demand and low gas prices, Platts Analytics said, adding that CIF ARA prices are expected to experience limited further downside since prices are already below the costs of supplying the region.
Additionally, demand in Egypt will drop with the indefinite postponement of it 6.6 GW Hamrawein coal plant. In the announcement April 9, Platts Analytics said the decision “[cited] overcapacity in the power markets and a preference for renewables.”
US thermal exports declined 1.8 million mt year on year over January and February, although Platts Analytics added that preliminary vessel tracking showed an increase in March “as shutdown of South African and Colombian coal production provided a window for US shippers to supply the seaborne markets,” the report said.
Platts Analytics added that although US mines started shutting down in March, due to low domestic demand, high stockpiles allowed a quick response to international demand.
“However, we expect this phenomenon to be fleeting as Atlantic Basin demand wanes due to COVID-19, and we expect that any pickup in US coal exports in March or April was likely modest in volume,” they wrote.
Platts Analytics retained its forecast of at least a 5 million mt decline year on year in 2020 for US exports.
On the domestic side, while “US coal prices have held up in the face of precipitous declines in the US power sector coal demand, which fell [about] 33% year on year in 1Q20, the fact that most marker prices were sitting at or below marginal cash costs of production is the main factor providing support to prices, aided by announcements of production cuts,” Platts Analytics said.
They added that Appalachian and Illinois Basin coal prices made slight increases in April compared to March, while Powder River Basin prices remained flat.
“We expect price downside to be limited but see no upside price catalysts on the horizon,” the report continued.
View article here.
- On April 17, 2020