Benchmark Pacific Basin coal prices have dropped 6% over the past week to a near one-month low as ample supply offsets strong generation demand from the world’s leading consumer, China, analysts said on Thursday.
Broker Global Coal’s Newcastle index, a reference price for high-grade (6,000 kcal/kg) Australian coal, was last assessed at USD 125.01/t, down by USD 7.31 on the week and the lowest level since 26 February. There have been eight physical trades so far this week, via broker Global Coal, for Newcastle cargoes – predominantly for April and May loading – at as low as USD 123/t.
“Coal prices face near-term downward pressure due to weak demand from Europe and China,” said Australia’s ANZ bank in a note.
“Nevertheless, power shortages in China should see [the country’s] import demand remain elevated ahead of a recovery in industrial activity.”
Chinese thermal coal imports were likely to reach a three-month high of 31.1m tonnes this month, compared with 30m tonnes in February, according to preliminary estimates by dry bulk analysis firm DBX. DBX said strong power demand, coupled with low hydropower output, had resulted in all-time monthly high thermal power production in January and February, of 540 TWh.
“DBX anticipates Chinese thermal power production to remain robust, as long as hydroelectric production fails to improve,” it added.
Strong supply
Yet, rising coal stocks at Chinese ports suggested a “very well supplied” market, meaning prices could come under further pressure, it said. Chinese port inventories were assessed this week by DBX at 59m tonnes, compared with an average of 58m tonnes last month and 56.5m tonnes in January.
At the same time, a bearish competing gas market was taking its toll on coal prices, said ANZ.
“Lower gas prices amid easing energy shortage concerns in Europe should also weigh on coal demand,” it said.
Asia’s benchmark front-month JKM LNG contract settled last at USD 9.57/MMbtu (EUR 30.11/MWh), which was around 17% lower than at the start of the year and down 30% on the year.
Reporting by: Laurence Walker
