THE Iran war has upended crude oil and liquefied natural gas (LNG) markets, but the impact on coal has been more muted, even as prices for thermal grades have quietly climbed to multi-year highs.
While the conflict between the United States and Iran has resulted in the loss of at least 10% of the world’s crude oil and about a fifth of LNG, thermal coal supply remains largely unaffected.
This is despite the fact the cost of producing and shipping has risen on the back of higher fuel prices. The Iran war is just one of the many drivers of coal prices, with soft Chinese domestic production and Indonesian regulatory changes likely more important factors.
Asia’s imports of seaborne thermal coal are on track to record their strongest month in May since December, according to data compiled by commodity analysts Kpler.
Asia’s thermal coal imports are forecast to reach 76.26 million tonnes in May, up 23% from April and also above the 72.83 million tonnes from May last year.
The stronger performance is broadly based with all of the region’s top buyers recording gains.
China, the world’s biggest coal importer, is on track to see seaborne thermal arrivals of 22.63 million tonnes, up from 16 million tonnes in April and the most since January. China’s appetite for imports has been driven by weaker domestic output, with last month’s production of 385.63 million tonnes being down sharply from the record 440.62 million tonnes in March.
It is also 1% below the level from April last year. For the first four months of the year China’s output eased 0.1% to 1.58 billion tonnes.
Given that thermal electricity generation, the vast majority of it being coal-fired, rose 3.6% in the first four months of the year, it’s likely that China’s coal supply-demand balance has tightened in recent weeks, thereby encouraging imports.
The worst coal mine accident in 17 years last Friday at a metallurgical coal mine in Shanxi province that left 82 people dead may further tighten coal supplies as the authorities ramp up safety inspections of both thermal and coking coal mines.
China’s rising import demand has helped lift the prices of the grades that it typically seeks.
The commodity price reporting agency Argus has assessed that Indonesian coal with an energy content of 4,200 kilocalories per kilogramme at US$64.43 a tonne in the week to May 22, a three-year high and up 42% since the end of last year.
India, the second-biggest importer, is forecast by Kpler to see arrivals of 13.78 million tonnes of thermal coal in May, the most since June last year and 7.3% higher than the 12.84 million tonnes recorded for April. Heat waves pushed electricity demand to record highs last week, spurring demand for coal-fired generation.
Indonesia changes
While both India and China are likely to seek more coal from Indonesia, regulatory changes announced last week by the world’s biggest exporter of the fuel will impact how cargoes are traded.
Indonesia plans to take control of the coal trade by routing exports through a state company, which will control contracts and prices.
While the government said it will honour existing long-term contracts, it also said it reserves the right to look at prices for such deals.
The idea is that by implementing state control over exports, the government will stamp out under-invoicing and thereby collect more revenue.
But it’s also likely that trade flows may be hit while uncertainty persists over how the new system will operate in practice. Japan’s imports of thermal coal are expected to reach 7.59 million tonnes in May, up from 6.63 million tonnes in April, while South Korea is on track for arrivals of 6.73 million tonnes, the most since January and up from April’s 4.79 million tonnes.
The two North Asian countries are the third- and fourth-biggest coal importers and are also the most capable of switching to coal-fired power generation from natural gas, which is imported in the form of LNG.
Capitalising on disruption
With both spot and oil-linked contract LNG prices rising sharply because of the Iran war, it’s likely that Japan and South Korea will seek to maximise coal-fired generation.
This has driven the price of high-grade Australian thermal coal higher, with the weekly assessment at Newcastle Port rising to US$133.09 a tonne in the week to May 22.
This was up from US$131.80 a tonne previously and just below the recent 18-month high of US$140.53 a tonne from early April.
Australia, the second biggest coal exporter, may be best placed to capitalise on any regulatory-induced disruption to shipments from Indonesia, with its lower-grade coal a substitute for Indonesian grades. — Reuters
Clyde Russell is a columnist for Reuters. The views expressed here are the writer’s own.
