Singapore — Newcastle thermal coal prices are expected to drift lower for theremainder of 2018 as global supply firms and demand growth slows, Citianalysts said Monday.
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Citi forecast the price of Newcastle 6,300 kcal/kg GAR coal for thefourth quarter of this year to drop to $80/mt FOB from $103/mt in the firstquarter.
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 forlonger as the seaborne market is supported by a lack of investment in newsupply, the analysts said. Second-quarter 2018 Newcastle 6,300 kcal/kg GARprices 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 withthermal 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-producingregions have led to a spike in thermal coal prices since the latter half of2016.
Chinese thermal coal supply has been hampered due to environmental andsafety crackdowns, railway transportation bottlenecks and strong demand forcoal during the colder-than-expected winter, boosting its domestic prices.
"Physical market tightness has eased since March [in China], withinventories building rapidly at utilities and ports," the analysts said."Domestic production has picked up and transportation bottlenecks areresolved."
The analysts said that they expect coal inventories in China to remainelevated 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 ofYuan 770/mt FOB Qinhuangdao in February this year amid strong demand andsupply tightness. However, ever since the government's move to cap the pricerise and boost production, the prices have come down to be assessed at Yuan555/mt Friday, S&P Global Platts data showed.
The country's move to restrict low calorific value coal imports, andshipping disruptions due to Daqin railway maintenance could be some of thefactors impacting prices in the coming months, the analysts said.
Coal shipments from China's Daqin to Qinhuangdao railway are set to dropto lower levels when the rail corridor undergoes scheduled maintenance fromApril 7 to May 1.
"The Chinese thermal coal market must navigate through seasonal demandweakness and incremental supply growth in the following months," the analystssaid.
For the full year, the market should stay in a reasonably tight balanceas the Chinese government has limited the bandwidth to raise production andfix spot prices in the range of Yuan 500-570/mt FOB Qinhuangdao for 5,500kcal/kg NAR cargoes, they added.
WEAKENING INDIA, SHINING ASEAN
India's coal imports are expected to remain broadly flat year on year in2018 with rising demand being offset by domestic supply, Citi analysts said.
Coal India, which meets 84% of the country's coal requirements, istargeting to produce 1 billion mt by the end of this decade.
Coal shipments for fiscal year 2017-2018 stood at 580.28 million mt asagainst a target of 600 million mt but were up by 7% year on year.
"With improving production from Coal India, India's thermal coal importsshould moderate over the medium term, albeit at a slow pace," the analystssaid.
Indian thermal coal imports are expected to drop to 136 million mt in2020 from 149.3 million mt in 2017, Citi noted.
However, thermal coal demand in Southeast Asia is expected to riseconsistently 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 in2019, the analysts noted.
"Similarly, the commissioning of new coal-fired power plants shouldsupport thermal coal demand in Philippines, Vietnam, Malaysia and Thailand."
Indonesia's exports could rise to about 340.9 million mt in 2020 fromabout 318.3 million mt in 2017, as high thermal coal prices propel the restartof idled mines, the analysts said.
However, falling investments in capacity expansion globally should limitseaborne supply growth, they added.
--Deepak Kannan, firstname.lastname@example.org
--Edited by Pankti Mehta, email@example.com