The price of coal used in power stations in Asia has fallen to its lowest level in three years due to fading demand in India and China, the two biggest coal consumers.
Having surged to $120 a tonne last summer, the Australian benchmark seaborne price of thermal coal has fallen 44 per cent to $61 a tonne, according to S&P Platts.
Coal’s fall is being driven by slower growth in power demand in China, the world’s largest coal consumer, as well as ample supplies of the fuel, according to analysts. The slump comes as coal faces increasing competition around the world from cleaner, renewable energy such as wind and solar, as well as cheap natural gas.
Coal’s weakness is likely to hit earnings for the largest coal miners including Glencore, Anglo American and BHP. Shares in Glencore, which relies on thermal coal for almost one-fifth of its earnings, have dropped 20 per cent this year.
Michelle Liu, an analyst at CRU consultancy in London, said that China’s demand for coal has weakened due to a slowdown in the manufacturing industry, which accounts for around 70 per cent of national power demand.
“The slowdown . . . caused by structural economic changes and the trade war, is having a significant, negative impact on the thermal coal market,” Ms Liu said.
Chinese power consumption in the manufacturing industry grew 3.1 per cent in the first half of this year — a sharp drop compared with 7.6 per cent over the first six months of 2018, according to the National Bureau of Statistics.
And while overall Chinese power generation grew 3 per cent in the first seven months of this year, coal-fired power generation was flat from a year earlier, due to strong growth in hydropower and nuclear.
Ahead of the upcoming 70th anniversary of the People’s Republic of China in October Chinese authorities are also focused on curbing pollution, further squeezing coal demand, according to Kash Kamal, an analyst at BMO Capital Markets.
A push for cleaner skies is “capping prices at a time when demand is already subdued given seasonality,” he said.
The price weakness in thermal coal this year was caused initially by a glut of cheap gas in Europe, which caused utilities to switch to gas over the winter and prompted coal suppliers to switch to selling to Asian markets.
But while demand in China has weakened, India is slackening too, according to Ms Liu, as the country gets deeper into the traditionally weaker monsoon season.
Analysts say the next big test of market sentiment will come in September when Japanese utilities and Australian producers thrash out new supply contracts for high-quality thermal coal. These negotiations are used as a benchmark for deals across Asia.