Asia’s benchmark coal index has pushed out a fresh four-year low amid a collapse in imports among big consumers and mounting competition with gas.

The Newcastle index for high grade (6,300 kcal/kg) Australian coal exports last stood at USD 47.62/t, down 6% week on week, according to broker Global Coal. It is now trading at its lowest level since February 2016.

Citing Refinitiv ship tracking data, the Eurasia Group estimated the region’s top four buyers would import around 70m tonnes of thermal coal in the third quarter – down 39% year on year.

This also put China, India, Japan and South Korea on track to import 26% less coal than during the second quarter of 2020 as fallout from the coronavirus pandemic showed little sign of abating.

“The coal industry has defended prices around USD 50/t,” said Eurasia Group energy director Henning Gloystein. “This is nice for them in the short-term, but it is costing them market share.”

Cheap gas competition
Cheap gas prices were prompting coal-to-gas switching among Japanese and South Korean utilities, said Gloystein.

Gas was generally a more competitive fuel than coal in Asia with LNG prices below USD 5/MMbtu and those utilities that could make the switch had already done so, he added.

The Japan Korea Marker, a regional spot reference price, last stood around USD 4.10/MMbtu, down 36% year on year.

LNG prices were only likely to exceed USD 6/MMbtu in the coming months if the northern hemisphere experienced an especially cold winter, Credit Suisse head of energy research Australia, Saul Kavonic, told Montel this week.

Kavonic expected LNG prices to come under renewed pressure next year amid an ongoing expansion of new supply.

Domestic substitution
“China has upped domestic production of coal and it is still willing to use trade disruptions to help support Chinese domestic prices by reducing the flow of imports,” said Justin Smirk, a senior economist at Australia’s Westpac bank.

“Demand from the developing world is not growing fast enough to fill this hole.”

Both China and India have stepped up efforts in the wake of the coronavirus to increase domestic coal production at the expense of imports in a bid to guarantee employment, said Gloystein.

A growing divergence between Chinese domestic coal prices and their international counterparts since May could yet encourage a rise in Chinese imports, ANZ bank said in a note this week.

However, the bank also noted the country’s inventories have continued to rise steadily to return to around the level they were this time last year.

Coal prices on China’s Zhengzhou exchange were down 2% on the week. September delivery last settled at CNY 556.60/t (USD 80.90/t).
Source: Montel