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Global seaborne coal supply in Q2 forecast to surge 12% on increased exports from Indonesia and Russia

According to Commodities at Sea, S&P Global Market Intelligence, global seaborne coal shipments for the first 26 days of June 2022 increased by 13% year on year (y/y) to 100.7 million metric tons (mt). While the shipments showed a considerable increase from Indonesia, Russia and Australia, the figures were lower from Colombia. Shipments of seaborne coal to mainland China declined during the same period, mainly due to higher domestic production and Covid-19 related lockdowns. Global seaborne shipments in the second quarter of 2022 are forecast to increase 12% y/y to 344.4 million mt, with an increase in Russian coal shipments destined to mainland China, the Mediterranean, Indian subcontinent and Northwestern Europe. The significant increase in the shipments of Indonesian coal to Indian subcontinent will be sufficient to make up for the decline in its shipments to mainland China, while Australian coal shipments to Japan, South Korea and Taiwan offsetting the decrease in its shipments towards Indian subcontinent and Southeast Asia.

Asian coal prices hit record on hot global competition for fuel

A worsening global fuel shortage catapulted Asia’s coal benchmark to a record. Spot physical coal at Australia’s Newcastle port jumped 3.4% to a record US$402.50 (about RM1,773.42) a ton in the last week of June. That’s the first time the highly watched spot index rallied above US$ 400. Power generators across Asia and Europe are rushing to secure additional coal shipments as a replacement to dwindling natural gas supplies, while miners are struggling to increase output. Germany and Austria are reviving idled coal power plants in response to Russian gas supply curbs, while Japan and South Korea are stockpiling the fuel ahead of hotter summer weather. Intense competition for a dwindling pool of available coal supply threatens higher power bills for households, as well as shortages for poorer emerging nations such as Pakistan. The surging demand spells a remarkable comeback for a commodity that many thought was on its way to being phased out. Hotter-thannormal weather in northern China is pushing power demand to an all-time high, increasing consumption of coal.

Divergence between High- and Low-Grade Thermal Coal Prices in APAC to Narrow

Prices between high- and low-grade thermal coal in Asia-Pacific (APAC) have diverged since late March 2022, but Fitch Ratings expects the gap to narrow over time. Prices of high-grade coal have been boosted by tight supply and geopolitical intensions, while prices of low-grade coal are constrained by weak demand from China. Newcastle 6,000kcal/kg grade coal reached USD380/tonne (t) in late June, a 105% premium over Newcastle 5,500kcal and close to the hard coking coal price of USD385/t. Fuel costs of north Asian power plants using liquefied natural gas are similar to those burning high-grade coal, suggesting limited upside for coal prices. China’s benchmark Qinhuangdao 5,500kcal/ kg price fell to the current CNY1,200/t and has found support at that level, from over CNY1,600/t in late March. The correction reflects weak demand; thermal power generation declined by 10.9% yoy in May 2022 due to lockdowns to contain Covid-19 outbreaks and strong hydropower generation. Coal inventories at power plants have also rebounded.

. Indonesia Coal Earnings Roundup

Fitch Ratings expects the credit profiles of Indonesian coal miners and coal contractors to remain strong through 2022, even though we think coal prices will moderate in 2023. Liquidity for the sector’s rated entities remains robust on strong earnings, modest capex for most companies and no major near-term debt maturity. Fitch has revised up the thermal coal price assumptions for 2022-2023. Our increased thermal coal assumptions reflect high yearto-date prices, supported by tight supply due to the Australian wet season, strong Indian demand mitigating lower demand in China, and structurally higher prices of Newcastle 6,000. However, Australian supplies will eventually recover, while India and China have increased imports from Russia, helping meet recovering Chinese demand..

China coal sector issues supply alert ahead of peak summer season

China coal industry associations urged mining companies to ensure they can meet demand during the country’s busiest summer season. The state-run Securities Times stated that the

China Coal Industry Association and the China Coal Transport Association notified enterprises to expedite the delivery of high-quality coal, take measures to assure emergency supplies, and maximize mining capacity. China’s energy market is primarily dependent on coal, and demand peaks during the summer months; a heatwave in the Yangzi River region has also increased electricity consumption. However, flooding in the south of the country has increased the availability of hydroelectric electricity, reducing the burden on the coal industry. Since the start of the year, Chinese authorities have approved the construction of 28 new coalfired power plants with a capacity of 37 GW, compared to 33 GW for the whole 2021. The new capacities, expected to be commissioned in 2024, are estimated to consume at least 74 mio t of coal per year. China currently has about 1,000 GW of coal-fired power plant capacity.

China: Anode coke prices remain firm in May on strong demand

Anode grade coke prices in China remained firm in May 2022 amid strong buying appetite from traders as demand for electric vehicle batteries remained robust. Prices of China's low-sulphur coke (less than 1%) were higher at $1,050-1,060/t. However, no cargoes were available for exports last month amid lockdown restrictions. Domestic prices for coke in China with 3% sulphur corrected slightly by $100/t m-o-m to $750-760/t. Chinese anode grade coke prices have remained in a tight range over the last few months due to the government's efforts to improve air quality. Furthermore, uncertainty due to the RussiaUkraine conflict also kept prices higher. Anode grade coke is mainly used in manufacturing calcined pet coke, a raw material for the aluminum industry.

Australia needs coal, gas to back up renewables – regulators

Australia's Energy Security Board proposed paying coal- and gas-fired generators for buffer supply on the grid but offering longer-term contracts for new back-up capacity, such as batteries, to smooth the transition to cleaner energy. The country's new Labor government, facing soaring power prices and blackout risks in its first month in office, has urged regulators to develop the "capacity mechanism" as fast as possible to encourage development of renewable energy and energy storage to fill the gap as coal-fired plants are retired. The board is seeking comments on its latest plan for a capacity mechanism designed to encourage investment in energy storage, but also paying coal- and gas-fired generators based on an auction system. Its first proposal last December sparked opposition from groups and some state governments that do not want coal-fired plants rewarded for having capacity available, but the Energy Security Board said all forms of backup will be needed. Coal-fired power makes up about 65% of generation and gas 7%, with the rest coming from renewables.

Spot Australian thermal coal has surged, but contract price is key

The spot price of Australian thermal coal is higher than that of coking coal, an unprecedented situation that highlights just how the global market for the polluting fuel has been upended by Russia’s invasion of Ukraine. The bulk of exports of thermal coal from Australia, the fuel’s second-biggest shipper, behind Indonesia, are priced against annual contracts agreed between miners and Japanese utilities, which typically run from the start of the Japanese fiscal year on April 1.

The annual contract for Australian thermal coal that is most watched is the one between miner Glencore and Japan’s Tohoku Electric Power. This year it’s believed that Glencore initially wanted as much as $400 a tonne, while Tohoku was aiming for closer to $150, and negotiations so far have narrowed the gap but hardly closed it. This year it’s believed that Glencore initially wanted as much as $400 a tonne, while Tohoku was aiming for closer to $150, and negotiations so far have narrowed the gap but hardly closed it.

Assuming an agreement is eventually struck, the new price will certainly be a substantial hike from that of 2021-22, meaning power prices are likely to rise in Japan – and also in South Korea and Taiwan, which also use Australian thermal coal. However, it’s also likely that the price agreed will be some way short of current sky-high spot prices.

Firmer prices lift Australian coking coal capacity

Around 8.4mn t/yr of new Australian coking coal production capacity has been bought on line this year, with a similar amount planned for the rest of 2022 and up to 14mn t/yr scheduled for 2023.

Firm, if volatile, metallurgical coal prices since late 2021 are starting to be reflected in mine restarts, new projects and expansions coming on line, bolstering supplies despite delays caused by extremely wet weather and safety concerns. The ramp-up of new projects, together with the approaching end of the 2021-22 fiscal year on 30 June, has seen vessel queues grow outside the key Queensland coking coal ports of Dalrymple Bay Coal Terminal, Hay Point and Gladstone. Australian developer Bowen Coking Coal (BCC) began railing coal from its 1.2mn t/yr Bluff pulverised coal injection (PCI) grade mine to Gladstone this month. BCC uses Australian firm QCoal's washing and rail loading facilities at the 1.2mn t/yr Cook Colliery, which also restarted in April having closed in late 2019 when then owner Bounty Mining went into administration.

Australian state's coal royalty hike could nudge others to follow suit – analysts

Queensland's bigger-than-expected hike in coal royalties could embolden other Australian states and resources-heavy countries around the world to make similar moves, analysts said. Australia's second-largest state, which aims to deliver a budget surplus by 2024-25, said it would increase royalties on coal production after a 10-year freeze, to capture windfall profit from rocketing coal prices. The move promises an extra A$1.2 billion ($836 million) in 2023 financial year taxes for the state that's home to coal mines owned by industry leaders like BHP Group Ltd, Glencore PLC, Anglo American PLC and Peabody Energy Corp. While another major coal producing state NSW left its rates unchanged so far, analysts said they would be keeping an eye out for the Commonwealth Budget in October to see if there were any plans to lift rates for iron ore or other miners, considering the boom most commodities saw recently in the wake of the Russia-Ukraine conflict.

Transnet aims to fix South Africa mining export shortfalls with procurement of locomotives

Transnet, South Africa’s government-owned logistics and Freight Company, intended to procure new locomotives in an effort to ease the rail crisis encountered by the country’s mining firms, especially in the coal sector. Transnet will come out with the new

procurement event for locomotives before endJuly. The industry, which missed out on about R35bn in 2021 from contracted coal, iron ore and chrome volumes that could not reach ports, would welcome any workable solution that Transnet procured. South Africa’s coal industry has been most critical of Transnet saying that billions of rands were lost in revenue as well as taxes and royalties that would have rolled into the national fiscus owing to restrictions on the coal line. In order to achieve 60 million tons (Mt) in export coal deliveries, mostly from the Mpumalanga and Limpopo provinces this year it will need to improve by 9% in the second half of the calendar year. Transnet railed 58.72Mt last year – its worst performance since 1996 – and well off its installed capacity of about 80Mt annually.

. South Africa is exporting more than ever to EU

Due to the fear that Russia may cut off natural gas supply going into the harsh winter months, Europe has beguna reluctant return to coal. But even before this turn of events, the EU had already been ramping up coal imports from other countries to prepare for an exit from Russian energy markets. In fact, EU countries have been importing coal in record numbers from South Africa.

“As soon as the Ukraine war started in February,” Quartz Africa writes, “EU countries—including the Netherlands, Italy, and Denmark—started ramping up coal imports from South Africa. The bloc has accounted for nearly 15% of RBCT’s 24 million tons of coal exports so far this year, compared with 4% in all of 2021.” Richards Bay Coal Terminal (RBCT) is the largest coal export terminal on the African Continent.

The move is contrary to climate pledge in COP26 that aims to financialy support South Africa to phase out the dry fuel. But South Africa’s current unemployment rate is 34%, and the current spike in coal demand, as well as coal prices, will likely grow the 200,000 jobs presently offered by the domestic coal industry.

Zimbabwe: Massive NRZ Partnership Coal Deal Takes Off

Zimbabwe has actualised its railway partnership agreements with Botswana and Mozambique for the enhancement of regional trade among the three countries through the movement of coal from Botswana via Zimbabwe to Mozambique. Since March when the National Railways of Zimbabwe (NRZ) signed the business agreements with Botswana Railways (BR) and the Mozambique Railways and Ports Authority (CFM), a trial run has been consummated linking the Botswana-Zimbabwe-Ponta Techobanine port rail corridor of Mozambique. "In terms of movement of coal from Botswana through Chiqualaquala to Maputo port, this is a very clear success of the current engagement between President Mnangagwa and President Masisi after signing the BNC agreement in Victoria Falls and also his engagement with his counterpart in Mozambique, President Nyusi.

. EU Looking For Alternate Coal Sources Before Russian Coal Embargo Takes Effect: Report

The European Union could likely replace Russian coal supplies with other major coal producers like the US, Australia, Columbia and South Africa, Anadolu Agency reported. The European Union will take the decision on making a shift to other coal producers before the deadline to ban Russian coal imports in August. Russia's reduction in gas supplies ahead of the coal

embargo has resulted in the EU intending to look for other coal suppliers as Russia is its number one coal supplier. As per report. The country accounts for around 50% of EU imports in 2020.

Russian energy corporation Gazprom said that they could only supply 67 million cubic meters of gas through the pipeline, which marked a 60% reduction in gas supplies. Netherlands, Germany and Austria have announced plans to use coal plants to reduce gas use and store gas in storage facilities. Russia's energy giant Gazprom has previously cut off the natural gas supply to Poland, Bulgaria, Finland, Denmark and the Netherlands.

Russia’s 2022 coal output could fall 17%, exports 30% – Interfax

Russia’s 2022 coal production could fall 17% to 365.1 million tonnes and exports could decrease 30% to 156 million tonnes, the Russian news agency Interfax reported, citing the energy ministry. That is the worst scenario with a full embargo on Russian coal coming into effect, the ministry said, according to Interfax. The European Union is set to ban Russian coal imports in midAugust..

Poland, Ukraine increase 2022 coal production to weather cold months

Poland and Ukraine are increasing this year’s production of thermal coal, the most polluting fossil fuel, preparing for colder months as Europe grapples with an energy security crisis exacerbated by the war in Ukraine. Despite widespread commitments to phase out coal from the electricity sector, countries including Germany, Austria and the Netherlands are preparing to boost coal-fired power generation as a contingency measure. “Poland plans to increase thermal coal production from existing mines this year maximum by 1.5 million tonnes,” Janusz Olszowski, president of the Polish Mining Chamber of Industry and Commerce said. DTEK, Ukraine’s largest energy investor, also said in an emailed statement that the country was planning to increase domestic stocks of thermal coal from 2 million tonnes to 3 million tonnes ahead of winter. DTEK Energy, which operates the coal mines, is trying to ensure prewar levels of coal production, it added, without disclosing numbers due to security reasons.

Colombia coal receipts set 30year record high in April: DANE

Coal export receipts for Colombia, one of the world’s top coal-exporting countries, climbed to a 30-year record in April, data from government statistics agency showed. As geopolitical conflict and tight supplies bolstered coal prices worldwide, Colombia’s coal export receipts totaled $1.3 billion, or $174.63/mt, in April. In the previous month, receipts totaled $619.9 million, or $156.16/mt. On a $/mt basis, April receipts were the highest in more than 30 years of data collection. From January through April, coal receipts averaged $154.53/mt, up from $71.26/mt a year ago. Amid record-high prices, export volumes rose to a two-year high 7.6 million mt from 4 million mt the previous month. It was the highest monthly coal volume exported since 14 million mt in January 2020. From January through April, coal export volume totaled 20.8 million mt.

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