Slowdown threat weighs on energy prices

Amild winter, threat of a global economic slowdown along with decoupling of European energy markets from Russian supplies have softened coal prices the world over and would continue to keep it under check in coming months, believe industry leaders and experts.

Warmer weather conditions in Northern Asia and Europe weakened natural gas prices by 40 percent while thermal coal demand softened.

International Monetary Fund’s latest World Economic Outlook forecasts that growth will slow from 3.4 percent last year to 2.8 percent in 2023.

“Risks to the outlook are heavily skewed to the downside, with heightened chances of a hard landing,” IMF said recently.

Combined with mild weather, Europe’s successful energy conservation strategies and construction of new liquefied natural gas (LNG) terminals have led to decline in European natural gas prices to pre-Russian invasion levels, and with renewable energy capacities being scaled up, the post-conflict jump in coal and oil-based energy production has also returned to lower levels.

High coal stocks at European power plants are also depressing the market.

“At around this time last year, there was record low coal stocks at European power plants. Everyone hit the panic button and started buying up coal and within 6-7 months, there was record high level of coal stocks. That also took away some of the steam off the markets,” Freddie Staermose, VP, Generation Fuels & Dry Bulks, Argus Media said during the 16th Indian Coal Markets Conference

Similar trend has been seen in case of gas also. “As we came out of winter, inventories in Europe are at record high levels,” he said.

Indonesian government has significantly cut its benchmark coal prices for April compared to March.

For April, prices of coal with calorific value above 6,000 kcal/kg (HBA), has been set at $265.26 per ton against $283.08/ton in March.

For HBA I, prices have been lower from

$136.70 to $102.53 and for HBA II from $102.26 to $87.81.

In China, while coal imports have risen as summer sets in, its domestic thermal coal prices have started showing signs of stabilizing lately after falling from midMarch.

Newcastle coal futures, the benchmark for the top consuming region of Asia, bottomed below the $200 per ton mark amid increased production and sluggish demand outside China.

Metallurgical coal prices saw a recovery in the March quarter due a combination of strengthening metallurgical markets including the opening up of China, as well as wet weather and a derailment in central Queensland. While PLV HCC settled at $343/t for the period, there has been some easing during the month of March as demand has softened.

As per reports, Glencore and Tohoku Electric Power of Japan has reached a yearlong supply pact starting April 1, 2023 at $199.95/ton FOB Newcastle 6,322 kcal/kg GAR, following prices hovering below $200/ ton at the spot market.

Tohoku Electric traditionally imports coal from Australia, US, Indonesia and Canada.

“In the light of recent dramatic changes in the global energy environment, we are responding to fuel procurement risks associated with Russia’s invasion of Ukraine and striving to lower costs under conditions of historically high energy prices. The movement towards embargoes against Russian fuel in Europe, US, Japan and elsewhere has led to tight fuel supplies and costs. Under these conditions, we are maintaining high level of stocks (coal and LNG) at power stations and continue to diversify procurement sources,” the Japanese company has said.

“The differential between metallurgical and thermal coal price has prompted us to consider resuming spot semi-soft coking coal (SSCC) sales to optimise price realisations,” Whitehaven Coal has told investors.

Price spreads between high-quality thermal coal and both SSCC and lowerquality thermal coal had earlier incentivised Whitehaven to wash more coal and produce high quality thermal coal.

“The combination of high coal inventories and low demand resulted in a decline in high CV thermal coal prices over the March quarter,” said Whitehaven Coal.