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Coal in 2021: Regaining lost heat
Sumit Maitra
The recent upswing in thermal coal prices across the globe goes on to prove that the much maligned black lump has remained the fuel of choice for economies to fire their power plants and factories once again as the world emerges from the Covid-19 pandemic.
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Not just power plants, when steel as well as cement factories in Asia and elsewhere resumed working full time to feed the global economy, as it woke up from a prolonged lockdown, it was coal which ignited a thousand boilers and blast furnaces as 2020 came to a close.
Supply and demand in the seaborne thermal coal market have returned, with demand rising due to a severe winter and unlocking of economies in most of the countries.
India is also set to witness growth in power demand as the economy becomes fully operational with vaccination efforts by the government and a fall in Covid counts.
Surging global prices
Prices of South African coal (6,000 kcal/kg NAR) were at $93 per ton FOB as of January 20 as against $91.5 on December 31.
The Australian coal (6,300 kcal/kg GAR) has risen to $85 per ton FOB on January 20 from $81.5 on December 31, according to information available with Coal Insights.
Indonesian coal (5,900 kcal/kg GAR) prices have gone up sharply to $84 per ton FOB on January 20 against $73.5 per ton on December 31 while the 5,000 kcal/kg GAR variety rose to $73.5 from $66 during the period.
Indonesia, in fact, has seen renewed demand for thermal coal from China following the rise in geo-political tension with Australia. This factor coupled with heavy rains that impacted both production and exports of coal, contributed to a surge in Indonesian coal prices, analysts said.
Can prices sustain?
While the standoff between China and Australia over coal consignments continued well into 2021, market watchers are waiting for the end of the month as the fate of annual supply contracts with Chinese power plants and steel mills would become clearer by then.
Close to 80 percent of Chinese thermal coal demand is served through medium or long-term contracts while the balance comes from spot trades.
China’s spot thermal coal prices recently touched a record high staying above the Yuan 1,000/ton mark.
It was supported by robust reopening of the economy, ban on Australian coal and lower than normal winter temperature in China and elsewhere in December, analysts said. There, however, has been moderate rebound in temperatures across most regions of China in January.
While analysts are mostly of the view that seaborne thermal coal market would remain a bit undersupplied in 2021, supporting prices, some industry participants believe that international coal prices have settled for now.
“International coal prices have risen steeply over the last few months due to strong Chinese demand and weather disruptions. We expect fuel prices to stabilise over the next six months,” Atul Daga, Chief Financial Officer at Ultratech Cement, recently told analysts during a conference call following the announcement of December quarter results.
There, however, were also expectations that thermal coal prices may continue to remain firm in the international markets.
“During the latter part of the December quarter, there was a strong rebound in pricing and we are increasingly optimistic that underlying market dynamics are supportive of continued improvement in this area,” Paul Flynn, Managing Director and CEO, Whitehaven Coal, said.
In the December quarter, globalCOAL Newcastle Index (gC Newc) coal prices rapidly increased from their August low to average $67/t for the quarter before finishing the quarter above $80/t.
There were price improvements for the lower-grade metallurgical coals late in the period. This was underpinned by the appreciation in the high-grade thermal coal indices.
During the quarter, several factors influenced the thermal coal price indices, including disruptions to thermal coal exports from Newcastle and a colder than usual winter in Asia, creating increased demand.
Overall, seaborne thermal coal prices continue to rise from the low points experienced in August. Supply curtailments coupled with increased energy demand in Asia are supporting the higher price environment, particularly for higher grades of thermal coal.
In China, the arbitrage between domestic and import prices remains above $20/t, notionally supporting the demand for imported coal, and import protocols of China has supplemented its domestic coal production with higher cost coal from alternative sources such as Russia, Indonesia and South Africa.
Additionally, late in 2020, China lifted its total import quota in response to strong domestic demand and an extremely cold winter.
China’s self-imposed restrictions have altered seaborne coal trade flows where, instead of being delivered to China, Australian coal is now finding customers in alternate destinations including India,
