Asia-Pacific coal rises amid supply concerns

21-January-2019

Asia-Pacific coal prices edged up over the past week amid supply concerns and some signs of rising demand.

Broker Global Coal’s benchmark Newcastle [Australia] index was last at USD 98.81/t, up by 1.3% on the week.

“The market looks tighter,” said an Australia-based coal trader on Thursday, pointing to some near-term rise in demand.

A coal analyst with a trading firm said the market was also likely reacting to the news of a severe mining accident last weekend in China.

“Winter demand and reduced imports have already brought [Chinese] power-plant inventories down below normal,” he said.

Mining accident

On Saturday, a roof collapse at the 900,000t/year Lijiagou coal mine in Shenmu county (Shaanxi province) killed 21 miners, resulting in a broader crack-down on mining operations.

“The central planner has asked [privately-owned] mines to suspend operations, to guarantee safety before Chinese New Year [in early February], arousing supply concern from the market,” said a Chinese coal analyst, noting this affected the mines in Shenmu and neighbouring Fugu counties.

In response, China’s Zhengzhou May thermal coal futures contract settled last up 3% on the week at CNY 580.60/t (USD 85.82/t).

“We believe the reduced supply will have an impact on the coal market after the holiday period,” said consultancy Wood Mackenzie in a note, adding Lijiagou mine only received its “grade 2” safety rating in May last year, suggesting flaws in the rating process.

“New safety checks and the mine restart process after the holiday will be stricter than before – in Shaanxi province at least [and] this will mean supply will be reduced as demand increases after the holiday for restocking,” they said.

While it was not clear how long the suspensions would last, they were likely to persist for at least a month, they noted.

Indonesian supply

Indonesia, the world’s largest thermal coal exporter, was still facing some weather-related disruptions to exports, as well as potential curtailments to production.

Any disruptions to Indonesian exports could spur increased demand for coal from alternative origins, thereby underpinning prices, said the trading firm analyst.

An East Kalimantan-based coal trader said rain was still hindering vessel-loading operations, but less often than in recent weeks. But this was “not the main problem.”

“The biggest issue at the moment is the price problem. The coal index is still low and that is not good, so many miners have stopped their mining activities,” he said.

Indonesia’s energy ministry this month lowered its January coal reference price to an eight-month low of USD 92.41/t, due to weaker demand, in particular from China.

Meanwhile, ongoing strike action at Australia’s largest rail freight company, Aurizon, will target coal operations from next week, Montel reported earlier.

But this is initially likely to affect mainly coking coal supply, participants said.

Source: MONTEL