Pandemic slashing coal demand, China a model for impact: Platts Analytics

As the impact of the coronavirus pandemic continues to widen globally, China is expected to provide a set of guidelines for how coal markets and players could be affected, according to S&P Global Platts Analytics.

The "coronavirus is cutting short-term coal demand significantly across the world," the analysts said in a report. "China could provide a clue as to how the rest of the world will be impacted by the coronavirus outbreak."

According to Platts Analytics, Chinese electricity generation declined 8.2% over the first two months of the year, compared with the year-ago period. The report added that similar declines were last seen in the final quarter of 2008, "in the midst of the great recession."

On the production side, however, Chinese domestic output has recovered to pre-COVID-19 levels, while stocks at Qinhuangdao hit multi-year highs.

"We had expected a significant rise in import volumes as ships waited for the relaxation of import quotas in January to discharge cargoes," Platts Analytics said. "However, the rate of imports is quite staggering, even if adjusted due to the impact of the coronavirus pandemic."

A number of southern Chinese importers reached their coal import quotas in March, "which is unprecedented this early in a calendar year," the analysts said.

While coal burn is recovering at coastal power utilities, it is happening at a slow pace, which will limit fresh seaborne import demand. Platts Analytics does not expect any restocking at Chinese coastal utilities until May or June, it said.

On the pricing side, "it is almost a race to the bottom," Platts Analytics said, as domestic FOB Qinhuangdao prices drop towards seaborne imported prices.

Globally, the coronavirus pandemic has led to a decline in electricity generation, in particular with countries enforcing lockdowns. Across the north Asia region, "factors will help provide a timeframe as to when the recovery in electricity generation will begin," Platts Analytics said.

Overall, Platts Analytics expects coal consumption to be bearish in 2020 "with cheap gas and power demand losses making it very hard for coal-fired dispatching to move above year-ago levels."