Fitch Ratings: Thermal Coal Price Stabilises in APAC but Possible Weakness Ahead

(Fitch Ratings-Singapore/Sydney/Shanghai-17 August 2023)--Coal prices have found some support in the Asia-Pacific region since July this year on seasonally higher demand, stabilisation of natural gas prices and subdued hydropower generation in China, but weakness may resume in off-peak seasons this year and next if China does not tighten supply, says Fitch Ratings.

The benchmark Newcastle 6,000kcal/kg coal price has stabilised around USD135 a tonne since July. Coal-fired power plants currently have a slight cost advantage over gas-fired ones in Asia, against none in April-May. The price premiums of Newcastle 6,000 over European and Chinese benchmarks have contracted to 23% and 2%, respectively, from around 100% at the beginning of 2023.

China’s overall coal imports surged by 93% yoy to reach 221.9 million tonnes in 1H23. Coal-fired power generation rose by 7.5% yoy in 1H23, due partly to the low base in 2Q22. China’s higher coal imports were more driven by weaker demand from other major importers in North Asia and Europe, higher Indonesian production, redirection of Russian coal to Asia and cheaper prices. Much of the incremental import fed into higher stocks along the industry chain.

India has been the other major coal importer, with import volume rising by 14% yoy in 1H23 (after a 58% rise in 2022), supported by 6% yoy growth in both coal consumption and power demand. We expect India’s power demand and, consequently, coal consumption to increase further, given our 6.3% GDP growth forecast for the financial year ending March 2024. Coal imports should remain strong in the near term, excluding seasonal impacts, but rising domestic production and the accelerating pace of renewable capacity additions will moderate imports over the medium term. (ends)