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Newcastle coal stretches recovery as China outlook improves

The Pacific basin’s benchmark thermal coal price has continued to recover from some of its lowest levels since the summer of 2017 amid more optimistic views of the health of China’s economy.

Global Coal’s Newcastle index climbed 5% for a second week to reach USD 89.58/t.

The Pacific basin’s benchmark for high grade (6,000 kcal/kg) Australian coal deliveries to Asia remains 11% below where it began the year. However, it has pulled away from April’s dip below USD 80/t, its lowest level in over two years.

Commonwealth Bank commodities analyst Vivek Dhar highlighted the release of Chinese economic data that surpassed market expectations this week.

Industrial production growth rose from an expansion of around 5.3% in January and February to 8.5% in March – well above forecasts of 5.9% growth, Dhar said.

“That is really your driver of upstream demand,” Dhar said. “China’s commodity demand may have already bottomed.”

Coal prices on China’s Zhengzhou exchange pushed out their highest levels in five months. They last settled at CNY 622.40/t (USD 92.97/t), up marginally on last Wednesday’s settlement.

Market stabilising?
Japan, Australia’s top customer for high calorific coal, also saw imports rise over the first three months of the year.

First quarter imports climbed almost 1% year on year to 29.5m tonnes, finance ministry data showed this week. However, this was mostly off the back of a strong January, with volumes for March down 3% at 9.6m tonnes.

One coal trader suggested the Pacific basin’s market looked stable, especially at the high calorific end of the spectrum. Newcastle prices overshot their recent falls and the recovery was “just correction”, he added.

The rise in Newcastle prices has outpaced gains in other areas of the world, widening spreads with other basins. This remained a bearish signal for James Stevenson, senior direction of global coal for IHS Markit in Melbourne.

“Economics favour moving coal out of the Atlantic into the Pacific, and that flow is happening,” Stevenson said.

Widening spreads
Normally it would make no business sense to ship coal from Europe to Asia given the competitive edge of suppliers with shorter delivery routes. Yet thermal coal cargoes have been reloaded at Rotterdam and Vlissingen for shipment as far as the Pacific amid a slump in European demand, according to IHS.

Newcastle’s premium over Global Coal’s European index climbed USD 3/t over the past week to nearly USD 27/t. The spread reached its widest margin in at least six years in March at USD 29/t.

“IHS Markit expects low prices to remain for the next couple of quarters, before rising again late this year,” said Stevenson.

He expected northwestern European coal prices to gravitate towards USD 65/t by the end of the year and Newcastle prices to head towards USD 80/t.

Newcastle coal stocks fell by 360,000 tonnes to reach 1.56m tonnes in the week through 14 April, according to port data. There were four vessels waiting to take delivery, up from one last week.

In India, power plant stocks have climbed to their highest levels since summer 2016. Inventories monitored by the country’s Central Electricity Authority last stood at 31.5m tonnes, up 1% on last week. This was enough to meet 18 days of power generation.
Source: Montel

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