Newcastle thermal coal prices are expected to drift lower for the remainder of 2018 as global supply firms and demand growth slows, Citi analysts said Monday.
Citi forecast the price of Newcastle 6,300 kcal/kg GAR coal for the fourth quarter of this year to drop to $80/mt FOB from $103/mt in the first quarter.
For 2019, Citi expects this price to be at $85/mt before dropping to $80/mt in 2020.
However, medium-term thermal coal prices will likely stay higher for longer as the seaborne market is supported by a lack of investment in new supply, the analysts said. Second-quarter 2018 Newcastle 6,300 kcal/kg GAR prices are expected to be at $90/mt FOB.
“China should remain the bellwether of the seaborne thermal coal market,” the analysts said.
Chinese thermal coal demand has had a strong start to the year with thermal power generation up 8.7% year on year, the analysts said.
However, full-year growth could be much weaker, they added.
Strong demand from China and supply tightness at various coal-producing regions have led to a spike in thermal coal prices since the latter half of 2016.
Chinese thermal coal supply has been hampered due to environmental and safety crackdowns, railway transportation bottlenecks and strong demand for coal during the colder-than-expected winter, boosting its domestic prices.
“Physical market tightness has eased since March [in China], with inventories building rapidly at utilities and ports,” the analysts said. “Domestic production has picked up and transportation bottlenecks are resolved.”
The analysts said that they expect coal inventories in China to remain elevated and domestic coal prices to further weaken in the second quarter.
The domestic Chinese 5,500 kcal/kg NAR coal price had surged to a high of Yuan 770/mt FOB Qinhuangdao in February this year amid strong demand and supply tightness. However, ever since the government’s move to cap the price rise and boost production, the prices have come down to be assessed at Yuan 555/mt Friday, S&P Global Platts data showed.
The country’s move to restrict low calorific value coal imports, and shipping disruptions due to Daqin railway maintenance could be some of the factors impacting prices in the coming months, the analysts said.
Coal shipments from China’s Daqin to Qinhuangdao railway are set to drop to lower levels when the rail corridor undergoes scheduled maintenance from April 7 to May 1.
“The Chinese thermal coal market must navigate through seasonal demand weakness and incremental supply growth in the following months,” the analysts said.
For the full year, the market should stay in a reasonably tight balance as the Chinese government has limited the bandwidth to raise production and fix spot prices in the range of Yuan 500-570/mt FOB Qinhuangdao for 5,500 kcal/kg NAR cargoes, they added.
WEAKENING INDIA, SHINING ASEAN
India’s coal imports are expected to remain broadly flat year on year in 2018 with rising demand being offset by domestic supply, Citi analysts said.
Coal India, which meets 84% of the country’s coal requirements, is targeting to produce 1 billion mt by the end of this decade.
Coal shipments for fiscal year 2017-2018 stood at 580.28 million mt as against a target of 600 million mt but were up by 7% year on year.
“With improving production from Coal India, India’s thermal coal imports should moderate over the medium term, albeit at a slow pace,” the analysts said.
Indian thermal coal imports are expected to drop to 136 million mt in 2020 from 149.3 million mt in 2017, Citi noted.
However, thermal coal demand in Southeast Asia is expected to rise consistently in the next few years, they added.
Indonesia is planning to add 35 GW of additional generation capacities, with a series of new coal-fired power projects slated to be commissioned in 2019, the analysts noted.
“Similarly, the commissioning of new coal-fired power plants should support thermal coal demand in Philippines, Vietnam, Malaysia and Thailand.”
Indonesia’s exports could rise to about 340.9 million mt in 2020 from about 318.3 million mt in 2017, as high thermal coal prices propel the restart of idled mines, the analysts said.
However, falling investments in capacity expansion globally should limit seaborne supply growth, they added.
Source: PlattsPrevious Next