Thermal Coal: China domestic pressures are again dictating Asian regional prices

Thermal Coal: China domestic pressures are again dictating Asian regional prices

•
Between February and June 2011 spot seaborne prices for thermal coal trended lower as a result of weak domestic prices in China and the displacement effects of the Japanese earthquake on seaborne demand. Between June and October prices rallied as drought conditions in South West China prompted a sharp increase in imports, Japanese imports normalized and Indian demand remained robust, despite reported congestion at discharge ports.
•
However, the widening the domestic spot premium over generator contract prices in China disconcerted the national government amid concerns over pressure for substantial compensatory increases in power tariffs at a time of heightened cpi levels. On 29 November the NDRC announced a cap domestic spot prices at Rmb800/t, equivalent to US$126.2/t. At the same time, the NDRC announced a 5% increase in domestic term contract prices for 2012.
•
At the prevailing exchange rates in late November, prior to the introduction of the cap, the spot-term spread had ballooned to US$44.2/t compared to US$36.3/t at the end of 2010. With the cap and the 5% increase in the term price to the equivalent of US$94. 6t for 5,500Kc NAR material, the aim was to reduce the spread to a minimum of US$31.6/t
•
However, the spread has narrowed more rapidly as FOB prices at Qinghuangdao have fallen persistently since the NDRC’s announcement to Rmb781/t or US$123.6/t, taking down regional seaborne prices at the same time.

Thermal Coal: but tight markets in 2012 and 2013 will keep prices resilient

•
Despite these recent price developments in China, solid volume growth Korea and Taiwan, improvement in Japanese demand and a strong jump in Indian imports, we estimate seaborne market demand increased by 10.5% in 2011.
•
As a result, a belated recovery in Australian exports in 2H 2011, and further strong growth in Indonesian supply to an estimated 304Mt, still resulted in an estimated deficit in 2011 of 6Mt in the seaborne market.
•
We envisage a similar pattern in 2012, with Chinese imports holding their record levels of 2011, Indian consumption growth remaining strong and solid growth in north-east Asian imports as demand in Japan, South Korea and Taiwan stabilizes.
•
With anticipated further growth in Australian and Indonesian exports of 8.3% and 3.2%, respectively, we now forecast the seaborne market will be close to balance in 2012 before deficit market conditions return in 2013. Under these market conditions, prices for thermal coal should remain resilient, in contrast to prices for metallurgical coal.
•
Following contract settlements in Japan around US$129.85/t in JFY 2011, we now expect full JFY 2012 contract prices to ease below the US$126.30/t level secured in September 2011 as a result of the pressure of Chinese prices on regional spot markets, before rising again to US$130/t in 2013.

Asian Thermal Coal Imports

Thermal Coal GLOBAL SUPPLY AND DEMAND