Thermal coal prices could get a further boost this year from potentially continuing weather-related disruptions to Indonesian and Australian production and ongoing industry reforms in China, analysts at Morgan Stanley said in a note.
Thermal coal prices have been on the rise in recent months mainly driven by output cuts in Indonesia and Australia, coupled with stronger demand from China.
“Supply disruption has arrived at a time of robust demand for thermal coal in China, as power generation rates increase over summer,” the analysts said.
Coal production in Indonesia has been hit by heavy rainfall this year while a rise in oil prices has also impacted miners in Australia leading to cutbacks.
“There’s flooding in China too, troubling local coal production,” the analysts said.
The 90-day price of Newcastle 6,300 kcal/kg GAR coal has surged 25% so far this year to $63.15/mt FOB, S&P Global Platts data showed.
Since April this year, China implemented a 276 workday a year limit, down from 330 workdays earlier, which has been impacting output.
China’s total production in the first six months of the year stood at 1.63 billion mt, down 9.7% over the same period last year, according to figures released by the National Bureau of Statistics last week.
Coal-fired power production climbed 4.8% in June and is expected to rise further through July and August, the analysts said.
“As a result, demand for imported coal has increased [in China],” they added.
China imported 21.75 million mt of coal, including lignite, thermal and metallurgical material, in June, up 31% on year and up 14.3% from May, according to preliminary data released last week by China’s General Administration of Customs.
“The combination of rising demand growth and impaired supply — has prompted an inventory drawdown across power generators and at the ports,” they said.
Combined coal stocks at China’s key Bohai Sea ports — Qinhuangdao, Caofeidian, Jingtang and Tianjin — totaled 9.662 million mt as of July 17, down 2.9% week on week, according to figures released by port operator Qinhuangdao Port Monday.
The analysts, however, noted that reducing Indian import demand and a possible strengthening of the US dollar could affect thermal coal prices negatively.
Indian thermal coal imports have been largely sagging this year amid rising domestic production and a weaker local currency.
Source: Platts