Fitch Ratings: Limited Risk of Further Drop in APAC Thermal Coal Price After Plunge

(Fitch Ratings-Singapore/Shanghai-12 April 2023)--The significant drop in the price of Newcastle 6,000kcal/kg coal limits chances of a further sharp correction as its premiums over low-grade and European coal have narrowed to more reasonable levels, but weak gas prices constrain a coal price rebound, Fitch Ratings says.

The benchmark Newcastle 6,000kcal/kg coal price more than halved in February and March 2023, driven by weak gas prices resulting from lower industrial demand and warm weather in Europe. Coal-fired power plants currently have limited cost advantages over gas-fired ones in Asia and Europe. The price premium of Newcastle 6,000 over the low-grade 5,500 narrowed to 34% from as high as 175% in December 2022, while its premium over European coal contracted to 21% from over 100% in January 2023. The high-grade thermal coal is currently 42% cheaper than hard coking coal, reversing the premium throughout 2H22.

China’s benchmark Qinhuangdao 5,500kcal/kg price continued to decrease in 2023. China’s coal production outpaced coal-fired power generation in 2022 and January-February 2023. We expect the Chinese coal market to remain balanced in 2023 as planned increases in production are sufficient to cover estimated rises in consumption.

Fitch expects seaborne demand for Indonesian coal to remain robust in 2023, although the levels may decline modestly in 1H23 from the highs of 2H22. Fitch expects India’s coal consumption to remain strong, supported by robust growth in demand from the power sector, which will drive healthy coal imports in 2023. India’s coal imports rose by 58% during 2022 despite domestic coal supply increasing by 11% as demand from the power sector rose by about 8%. We expect India to continue to increase domestic coal production to limit imports over the medium term. (ends)