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Asia's coal importers split between rich north and poorer south

Thermal coal's rally to 13-year highs in Asia has done little to dampen overall demand, but the region is increasingly becoming split between those countries willing and able to pay high prices, and those who are cutting now unaffordable imports.

Imports of thermal coal in wealthier north Asian countries, such as Japan, South Korea, China and Taiwan are set to record month-on-month increases in August, with some reaching the most this year, according to vessel-tracking and port data compiled by commodity analysts Kpler. However, the less-developed nations of south Asia, such as India, Pakistan and Bangladesh are likely to see lower imports of the fuel used to generate electricity.

Prices of thermal coal have surged in Asia since September last year, when demand started to recover after the initial economic lockdowns across the region to try and combat the corona virus pandemic started to lift.

South Korea is expected to have shipped in 7.40 million tonnes in August, and while this is down from July's 8.49 million, it is still the secondhighest month this year, according to Kpler data.

Taiwan's August imports are estimated at 6.33 million tonnes, up from July's 5.12 million and

the highest since Kpler started compiling coal data in January 2017.

NE Asian coal market rallies amid tighter availability

South Korean coal prices rose this week, thanks to firmer freight rates and tight coal market availability owing to a force majeure declared by a Russian mining firm.

A major thermal coal producer operating in Russia's Sakhalin island declared a force majeure on coal loadings this week amid disruption caused by heavy rainfall across the far east region, sources told Argus.

South Korean independent power producer GSDEP, which procured 120,000t of minimum NAR 5,300 kcal/kg Sakhalin coal on 22 June for loading between the second half of September and the first half of October in two lots, was directly affected by the force majeure and was reportedly looking to increase volumes through existing term tenders.

Argus assessed NAR 5,800 kcal/kg coal prices at $137.79/t fob Newcastle and $156.04/t cfr South Korea this week, up by $4.05/t and $7.61/t on the week, respectively.

South Korea-delivered prices rose more sharply this week, thanks to strong freight rates. The average Capesize freight rate between east Australia and South Korea rose to $20.70/t, up by 44¢/t on the week and $9.92/t on the year.

Restrictions across the South Korean coal fleet remain minimal, with only the 500MW Samcheonpo unit 6 off line for maintenance since 1 October 2019. The unit is scheduled to return on 31 August.

South Korea's coal availability is scheduled to average 36.4GW in August with the commissioning of the 1GW Shin-Seocheon unit 1 in June. The country's coal-fired generation averaged 27.5GW a year earlier.

China coking coal, coke futures extend blistering rally on supply worries

Dalian coking coal and coke futures surged to record highs on Tuesday, extending a red-hot rally fuelled by concerns about the supply of steelmaking ingredients in top steel producer China.

Coking coal's most-traded contract on China's Dalian Commodity Exchange ended morning trade 6% higher at 2,470 yuan ($381.09) a tonne, after earlier hitting an all-time high of 2,571 yuan.

Coke was up 7.2% at 3,171 yuan a tonne, after touching a life high of 3,267.50 yuan.

Prospects of prolonged tightness in metallurgical or coking coal supply in China have underpinned prices, driving the cost of coke - the processed form of coking coal - higher.

Higher coal prices are expected in the second half of the year 2021-08-02 as Beijing's drive to boost domestic mine safety cuts into local output even as booming imports may be reaching their natural limits.

Benchmark iron ore futures, meanwhile, rebounded, with Dalian prices extending overnight gains as easing worries over the COVID-19 outbreak in China since-july-2021-08-23 helped calm nerves after several days of sell-offs driven by demand concerns.

Seaborne met coal hits all-time high in China amid domestic tightness

Seaborne metallurgical coal prices hit an alltime high of $410/mt CFR China for premium hard coking coal Aug. 25. The previous high was reported at $392.50/mt CFR China on Jan. 20, 2011.

Domestic supply tightness, along with healthy steel demand, have contributed to the rally in

the CFR China market, trading sources said. Domestic Chinese coking coal has been in tight supply as mining activities were restricted by the environmental and safety campaigns imposed by local governments across various provinces in the country.

China’s unofficial import ban on Australian coal in late 2020 has added to the supply tightness, with imports from the US, Canada and Russia being unable to replace the Australian volume and quality. This has been compounded by the closure of the border with Mongolia on Aug. 23. Australia and Mongolia have been China’s top sources of imported coking coal for many years.

A latest trade was observed at Yuan 3,100/mt DDP Tangshan for an Mongolian No.5, sold to an end-user on Aug. 25. Meanwhile, in the seaborne market, a US low-vol Buchanan offer was heard indicated at $390/mt CFR China, for 100,000 mt, with early-October loading.

China Coal Approvals Seen Adding to Confusion on Climate Action

Approvals for major new coal power plants by China’s local authorities show the tension in the nation’s efforts to meet climate goals, even as the overall total of projects given the go-ahead falls, according to campaigners.

Local authorities approved 24 plants with a combined capacity of 5.2 gigawatts, a 79% decline from the same period in 2020, Greenpeace said in a report published Wednesday. Even so, the majority of that capacity will come from three large-scale projects earmarked for potential support from central government.

“There are still mixed signals on coal. That leads to financial and environmental risk,” said.

Li Danqing, a Beijing-based project leader for Greenpeace East Asia. “Provinces are clearly still anticipating financial support on coal.”

China’s policymakers have offered at-times conflicting signals on plans to meet President Xi Jinping’s goal to zero out greenhouse gas emissions by 2060, and to begin reducing coal consumption from 2026. Immediate steps to cut pollution are being balanced against efforts to secure power supplies and to support a heavy industry-led recovery from the pandemic.

The Communist Party’s Politburo last month called for a more coordinated, orderly approach to carbon neutrality, a move that’s been widely interpreted as a signal to avoid aggressive measures.

Indonesia’s pipeline of coal plants undermines pledge to only build renewable

Coal currently makes up nearly 40 per cent of Indonesia’s energy mix. Despite green rhetoric from the government, the situation is not likely to improve soon.

That’s because, of the 41 gigawatts (GW) of new generation capacity expected to come online in the country by 2030, 14-16GW is due to come from coal.

And 3.5GW of that is likely to come from coalfired power plants built immediately next to mines. Such “mine-mouth” plants often use lignite – the lowest quality and least efficient type of coal.

Indonesia has vast reserves of coal. South Sumatra holds 25 per cent of those, or 9.45 billion tonnes. The province’s reserves are mostly lignite and subbituminous coal, according to a report from Indonesian NGO Aksi Ekologi dan Emansipasi Rakyat (AEER), which translates as Ecological Action and People’s Emancipation.

Such low-quality coal leaves a heavy environmental footprint. More is needed to produce the same amount of energy compared with higher calorific coal, requiring more land for mining, and creating more air pollution per unit of energy produced.

South Korean coal imports spike to all-time high

South Korean thermal coal imports spiked to an all-time high in July amid surging overall power demand and nuclear outages.

South Korean thermal coal imports rose by 2.3mn t or 25pc on the year to more than 11.6mn t in July, according to customs data released today, narrowly surpassing the previous high recorded in September 2017.

The surge in imports came amid a spike in coalfired generation last month as seasonal power demand surged on hot weather while nuclear outages raised reliance on fossil fuels.

Daily mean temperatures in Seoul averaged 28.4°C last month, making it the hottest July for at least 11 years, with daily peak power demand rising by 18pc on the year to a likely record-high average of 81.2GW.

At the same time, nuclear availability fell by 1.7GW on the year to 16.2GW, compounding the country's reliance on fossil fuels to meet electricity demand. The 1.4GW Shin Kori 4 reactor was unavailable for most of the month because of an outage, while four other reactors were off line for the whole month for planned maintenance.

How Australia will ensure sufficient electricity while closing some coal-fired power plants

A new report by AEMO released on Tuesday found that by 2025 there would be periods when all customer demand across the national electricity market could be met by renewable generation.

The annual reliability outlook, known as the Electricity Statement of Opportunities, said the transition to cleaner energy was being driven by residential solar installation, grid-scale wind and solar projects and thermal generation retirements. “No reliability gaps are forecast for the next five years, primarily due to more than 4.4 gigawatts of new generation and storage capacity, as well as transmission investment and reduced peak demand forecasts,” Westerman said.

“Significant renewable energy investments, and well-progressed dispatchable generation projects, including gas plants, pumped hydro and battery storage, will all help replace retiring coal and gas plant.”

As well, investment in new and upgraded transmission infrastructure, including Project EnergyConnect linking South Australia and NSW, will reduce consumer costs while improving the resilience and security of the system.

Demand for NSW coal exports continues despite pandemic

The NSWMC research also analysed the potential economic benefits of all major mining projects in the NSW planning system, from initial EIS submission stage to approved projects still seeking related conditional approvals before mining can begin.

It found there were 32 mining projects at various stages in the NSW planning system including rare earths, silver and cobalt.

Demand for NSW coal has remained strong despite the global pandemic, including with NSW's top three traditional markets Japan, Korea, and Taiwan, as well as important emerging markets such as India, Vietnam and the Philippines.

"This demand is expected to remain strong for at least the next two decades and we've also seen a significant surge in the coal price over recent months," the NSWMC said.

"This is also driving opportunities, with a range of NSW coal projects under assessment. Most are for extensions of existing operations, with a few new ones and a further $5.5 billion of investment opportunity for our regions, and thousands more jobs created or protected across the state."

The number of coal projects has decreased from 21 in 2020 to 19 projects in 2021 due to one project starting, the withdrawal or discontinuance of some projects, and the NSW Independent Planning Commission's refusal of the Dendrobium project.

Australian thermal coal dilemma deepens

Australian high-grade thermal coal prices are at highs only briefly seen in the mid-2008 spike, yet the medium-term outlook is poor given the increasing push to carbon neutrality. In this environment, UK-Australian mining firm BHP has put a negative value on its thermal coal assets and all but admitted that it may have missed the boat to get out of its 20mn t/yr Mt Arthur mine and associated infrastructure in the Hunter Valley region. At the same time strong cash margins are incentivising firms with existing operations to push up output. It is a balance to capitalise on record-high prices without overcapitalising on assets that could become a liability.

There are several different approaches to managing this risk. The first is to get out of thermal coal, as BHP is trying to do.

Glencore argues that it will run these operations well and close them properly, rather than simply selling out and allowing others to take responsibility for the carbon emitted. It will be interesting to see if it is prepared to acquire assets it does not already have a stake in, particularly if asset values continue to decline and coal prices are sustained.

The final option is growth regardless of asset prices. This is the approach taken by India's Adani, which is continuing to develop its 10mn t/yr Carmichael coal mine in the Galilee basin in Queensland through its Bravus subsidiary. The mine is expected to cost around $4bn plus infrastructure, which is considerably more than the firm would have to pay to buy the significantly higher-grade 20mn t/yr Mt Arthur mine from BHP.

.Australia’s largest mining event reschedules to January 2022

Due to ongoing travel and gathering restrictions, and the rise of COVID-19 infections around Australia, Beacon Events, the organisers of the International Mining and Resources Conference (IMARC) have announced their decision to reschedule the 2021 edition.

IMARC 2021 will move to the new dates of 31 January – 2 February 2022, with the hybrid event taking place in-person at the Melbourne Showgrounds, and online for those that cannot attend in-person.

IMARC Managing Director, Anita Richards, said that while it is disappointing that this important industry event has had to be postponed from 2021, this is the responsible action to take under the circumstances as the health and safety of IMARC’s participants is a number one priority.

Austmine CEO Christine Gibbs Stewart said “considering the health and safety of our members, delegates and staff members, we support postponing IMARC 2021 until January 2022. We know how important this event is to our members who are exhibiting and attending, as well as the METS sector overall, and we encourage everyone to consider this as an opportunity to refocus your efforts and support the event in 2022.”

BHP, MMG, Newcrest, Mitsui, OceanaGold and Kirkland Lake Gold have all confirmed their continued support for IMARC in January 2022, with their executive leadership teams confirmed to speak within the conference program.

In addition to the Federal Minister for Resources, the Hon Keith Pitt, major sponsors METS Ignited, Caterpillar, ABB, and the World Gold Council have also confirmed their support and participation.

IMARC 2021’s new dates are aligned with the expected easing of restrictions from all states across Australia, allowing for strong domestic representation.

S.African coal miner Exxaro says rail snags will hit 2021 exports

South Africa’s biggest coal miner, said its exports would remain subdued in 2021 due to a range of rail logistics woes including a lack of locomotives, derailments, infrastructure sabotage and cable theft.

The company, which exports high-quality coal to countries such as India, had been well placed to take advantage of strong demand from China this year after the Asian giant cut off imports from Australia over quality concerns.

This opportunity arose at a time when coal prices in the first half of 2020 were almost 50% higher than the same period a year before.

However, Exxaro failed to fully benefit because its rail problems hit its export capability, the company said.

“Due to poor rail performance, Exxaro could not participate and realise the price hike fully,” Nombasa Tsengwa, managing director of minerals, said during a conference on Thursday.

The company has already lost 2 million tonnes of export demand in the first half and another million tonne could be at risk, she added. Its shares were down 2.01% at 1110 GMT, underperforming the broader market index which was down 0.44%.

Exxaro and other commodity exporters depend heavily on the rail infrastructure of state-owned monopoly Transnet.

68% of U.S. coal fleet retirements since 2011 were plants fueled by bituminous coal

In 2011, the United States had 317.6 gigawatts (GW) of coal-fired electric generation capacity. About 88.7 GW of that capacity was retired in the decade that followed. Units fired by bituminous coal accounted for the largest share of retired capacity, at 68%.

Coal is classified into different types, or ranks. The two coal types most commonly used in U.S. coal-fired power plants are bituminous and subbituminous coal.

Generating units that burn bituminous coal were generally older and smaller, leading to more of them retiring than units fueled by subbituminous coal, particularly from 2011 to 2015.

The lower delivered price for subbituminous coal (because of more cost-effective mining practices) also makes coal plants that use it more economically competitive than bituminous coal-fired plants. In 2019, the delivered price of subbituminous coal was $1.86 per million British thermal units (MMBtu), compared with $2.26/MMBtu for bituminous coal.

Another important factor in coal capacity retirements is the degree of competition from other electricity generation sources in the regions where the plants operate.

Interior keeps slashing royalty rates for coal companies in the US

For the third time in recent months, the Interior Department has lowered a coal company’s royalty fees to encourage it to continue mining publicly owned coal.

Interior’s recent flurry of royalty rate reductions comes in spite of the Biden administration’s effort to take a “whole-of-government approach” to combating human-caused climate change.

In May, the Bureau of Land Management granted royalty relief to Arch Resources Inc. for two of its coal mines on federal land in Colorado and Wyoming (Greenwire, July 28).

The bureau did the same for Deseret Power Electric Cooperative’s Deserado mine in Range-

ly, Colo., last month, according to records on BLM’s minerals reporting system.

Underground mines like Deserado typically pay a royalty of 8 percent of the gross value of coal produced on federal land. BLM approved a 2 percent rate request for the Deserado mine, which has received several royalty reductions in the past, on July 28.

The decision by the climate-focused Biden administration confounded environmental activists, who say that Interior’s encouraging more coal production runs counter to efforts to combat human-caused global warming.

Strong tailwinds for US coking coal

While Chinese mills have consistently indicated that US offers are coming above their expectations, the recent willingness to accept these offers, which have risen by as much as $10-20/t each time from the last done deal, indicates that these buyers have little alternative.

Border restrictions on truck deliveries from Mongolia may ease if Covid-19 infection rates fall further from the highs of June this year, but Chinese buyers are already bracing themselves for tighter restrictions again in the winter should there be a resurgence in infections. Rail wagon shortages and weather-related rail disruptions in Russia have limited spot availability of coking coal and PCI since June as well, and despite some recovery in rail capacity, supplier confidence has remained strong, with Russian offers racing ahead of index levels.

The Chinese premium domestic coking coal price is assessed at the equivalent of $446.53/t today, up by $114.99/t from just a month earlier, with top graded Anze low-sulphur coking coal pegged at about 3200 yuan/t ($492/t).

Despite the current highs, market participants have their eye on transaction levels for premium low-vol coals reaching $400/t cfr China this year. Freight is around $61-62/t for Panamax and $55/t for Cape. The Argus-assessed daily China cfr for premium low-vol hard coking coal has been hitting new record highs daily, since the assessment was launched 10 years ago, reaching $367/t today. The premium low-vol China cfr price has increased to $59/tin the last month, the steepest price hike since October 2016, when weather disruptions to port loadings in Australia caused a spike.

German court annuls permit for newest coal plant

A German court upheld a challenge to the planning permit of the country’s newest coal plant on Thursday, reinforcing the prospect of an early closure of Datteln 4 after just one year of operation.

The challenge was brought against the city of Datteln by private parties, the neighbouring city of Waltrop and Bund, the German chapter of environmental group Friends of the Earth.

They argued a second permit for the power plant, issued in 2014, continued to violate state planning laws after the administrative court in Muenster voided an original permit in 2009.

Accusations centred on the site’s ongoing inappropriate proximity to residential areas as well as contested estimates of the plant’s pollution levels and their likely impact on the surrounding region.

The court ruled the choice of location for the power plant did not meet relevant legal requirements. The defendants can appeal to a federal court.

Uniper’s Datteln 4 is likely to be the last coal plant Germany builds. It began operating in May 2020. Litigation delayed its launch by around nine years.

Uniper has flagged a willingness to close the plant early in return for compensation if Germany were to bring forward its coal phaseout to 2030. Some have suggested this will be necessary to comply with requirements under the Paris agreement goal to limit global warming to 1.5C.