World coal market review – week 29

Last week, thermal coal prices in Europe exceeded 135 USD/t reaching new 10-year highs due to a number of factors:

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• tight demand of coal in the European market, partly due to the low volume of supplies from Colombian exporters;
• soaring spot electricity prices in a number of EU countries amid the recovery of business activity after the pandemic and high average daily temperatures in some regions of Europe;
• surge in TTF gas quotes to 36.1 EUR/MWh (+1.0 EUR/MWh to July 01, 2021) and a decrease in the EU carbon prices to 51.2 USD/t (-6.4 USD/t to July 01,2021);
• limited supply of South African material to international markets (see below).

The planned maintenance of the railway connecting the coal-producing provinces of South Africa and the port of Richards Bay, limits the volume of exports of South African coal and supports the indices over 125 USD/t. The Richards Bay port, which was forced to suspend operations earlier due to civil protests in the country, is now working in a limited mode amid increased security measures. According to market participants, the situation is also aggravated by the shortage of workers in the port and on the railway due to their participation in civil unrest. Coal reserves at the Richards Bay terminals decreased to 3.0 mio t (-0.3 mio t to July 14, 2021).

The prices for 5500 kcal/kg NAR coal of domestic production in the port of Qinhuangdao exceeded 157 USD/t amid heavy rains in China, halting the operations of a number of large coal mines and the railway, connecting large coal deposits and the export port of Qinhuangdao. Due to the decrease in the volume of coal shipments to the port, Qinhuangdao coal stocks reached 5-year lows.

The heightened demand for energy material from Australia in the Asia-Pacific region continues to strengthen the indices of coal of Australian origin over 160 USD/t. The heat wave in Japan, as well as the decree of the Japanese government on increasing the volume of electricity generation in the country during the Olympic Games from July 23 to August 08, 2021, favorably impacted the country’s demand for imported coal.

Last week, some Asian generating companies signed contracts for the supply of coal from Australia with reference to the FOB Newcastle index to reduce the risks of volatility in spot prices for thermal material.

A number of large transactions of Chinese generating enterprises with the deferred supply of coal from Indonesia in August, as well as the demand of some coastal thermal power plants in India strengthened the quotes of the Indonesian 5900 GAR material over 102 USD/t. In addition, aggravating epidemiological situation in the country and the closure of a number of mines in southern Indonesia reduce coal exports, providing additional support to indices.

Despite the wait-and-see position of a number of large metallurgical companies in the Asia-Pacific market, limited supplies of coking material from Inner Mongolia to the Chinese market force Chinese steel enterprises to buy Australian metallurgical coal from Asian traders, positively impacting Australia coal quotes over 210 USD/t.

Source: CAA Analytics