Weak Chinese GDP growth may keep lid on Asian thermal coal demand, prices in 2024

Faltering macroeconomic conditions in China, record high output expectations in major producing countries and continued efforts of coal consuming nations to curb fossil fuel-based energy sources will likely keep a lid on Asian thermal coal prices and demand in 2024.

While 2023 witnessed significant corrections post the record-high price season the previous year due to the Russia-Ukraine war, market participants say they do not expect any considerable fluctuation in fuel rates in 2024 as trade flows seem to have gradually adjusted to the post-war norm.

China, the world's largest thermal coal consumer, is expected to experience lower economic growth, tighter-than-expected cash flows and a deceleration in industrial activity, which in turn is likely to contract spot thermal coal demand, although strong domestic production capabilities will likely remain.

According to the latest forecasts by the International Monetary Fund, China's GDP growth will shrink to 4.6% in 2024, from 5.4% this year. "This slowdown reflects continued weakness in the property sector and subdued external demand," the IMF said recently, adding that policymakers need to provide aid to local government, which has been grappling with mounting debt due to years-long expansion and overinvestment in infrastructure projects.

"China will continue to buy low-CV coal, but demand is expected to be flat. China's economic development doesn't look to be promising, and downturn in the country's manufacturing and real estate sectors will not let demand to increase," said Ramli Ahmad, president director of Indonesia-based producer PT Ombilin Energi.

At least a dozen coal traders that S&P Global Commodity Insights spoke to echoed the sentiment, saying that, as long as China's economic activities do not gain momentum, demand for thermal coal is unlikely to see significant elevation.

Pat See Khoo, senior analyst at S&P Global, said China's thermal coal imports will likely drop 10-20% in 2024 from the end of 2023. In 2023, China imported around 309.4 million mt of thermal coal including term contracts and spot imports, up from 216.9 million mt the previous year, according to data from S&P Global Commodities at Sea.

"China is likely to show a null growth for coal-based power generation, while its hydro-electricity output is anticipated to grow 2% on the year. This in turn implies that the country is unlikely to post a strong recovery in 2024," Khoo said.

Market participants said they expect Kalimantan 4,200 kcal/kg GAR prices will maintain a range of $55-65/mt in the first half of 2024, while 3,400 kcal/kg GAR will lie within a $35-40/mt range. Platts, part of S&P Global Commodity Insights, assessed Kalimantan 4,200 kcal/kg GAR FOB at $57.60/mt on Dec. 20.

The average price of Kalimantan 4,200 kcal/kg GAR was at $70.81/mt in the January-June 2023 period, before it started to slide due to falling demand.

India's coal consumption outlook

Amid rapid growth in core economic sectors, structured expansion of infrastructure and industrial activities and rising power demand due to population growth, thermal coal sellers have pinned their hopes on India to drive demand in 2024, albeit at a gradual pace.

"In India, robust production and expansion of mining activity will also keep their appetite for seaborne coal subdued unless the government increases domestic coal prices," Ahmad said.

Moreover, the upcoming national election in 2024 will plausibly increase the overall coal imports to support the developmental activities. While India's thermal coal import at the end of 2023 is likely to be at around 180 million mt, expectations of higher volumes have been floating in the market. Currently, India has imported 175.6 million mt so far in 2023 as compared to 165.9 million mt in 2022.

"Lack of any major growth in renewables is also a reason coal will remain important for India, because the ballooning power and industrial demand has to be met at any cost," a senior official from state-run power generator NTPC said.

India's federal coal ministry has also recently set a target of tripling its underground mine output in the next few years. "We are planning to produce at least 100 million mt through underground mines by 2030," M Nagaraju, a senior coal ministry official said.

Supply-side fundamentals to hold steady

Despite momentum on green pledges by producer countries and volatile demand fundamentals, market participants expect the supply and exports for 2024 to be at same levels as 2023.

"Indonesia's production target for 2024 is close to 700 million mt, of which 500 million mt will be for exports and 200 million mt for domestic demand," said a senior executive from the Indonesian Coal Mining Association, adding the demand and cost curve for most of the grades is expected to be flat next year.

"Indonesia is not likely to cut down on coal production as that can rattle the sentiments of miners, a risky move before the upcoming elections," said a Singapore-based trader.

Australia, on the other hand, will continue to be one of the main suppliers in seaborne market especially to countries like China, Japan, South Korea and Taiwan even though exports value is projected to drop sharply. Moreover, the growth in Chinese economy will also be a deciding factor in improving Australian coal supplies to one of its biggest importers, market participants said.

Indonesian thermal coal exports in the current year till date has been 487.20 million mt while that of Australian supplies have been 189.70 million, CAS data showed.

Meanwhile, Russian coal demand is likely to come mainly from China and India, sources said, as price competitiveness and logistics issues may make it slightly less attractive for buyers. Russia's coal exports in 2023 till date was at 129.10 million mt.