How COVID-19 has Played Havoc on Thermal Coal Prices Globally?

The outbreak of the Coronavirus pandemic has taken a huge hit on various commodities including thermal coal. With the halt to industrial activities and trade restrictions being imposed globally, the demand for power and steel has been adversely impacted and so does the thermal coal requirement from these sectors.

India and China are the top two thermal coal importers across the globe whereas Indonesia and South Africa are the key exporters of the same.

Plunge of 25% in Indonesian thermal coal prices

The price of Indonesian thermal coal has slumped to four years low with the most popular grade of non-coking coal having an energy value of 4,200 kacl/kg, GAR basis touching a mark of USD 26/MT, FoB basis last week. In two months, the same has recorded a plunge of 25% which is highest so far in such a short interval.

In the case of Indonesian coal's biggest importer, China, although it is a net importer of thermal coal the country still has its domestic supplies and it seems that Chinese domestic coal prices have also fallen considerably amid tepid in-house demand.

The benchmark price at Qinhuangdao SH-QHA-TRMCOAL has slipped 13.6% from its peak so far in 2020 of RMB 573/MT (USD 81/MT) on 26 Feb'20 to RMB 473/MT in mid of April. This price is below the informal price range that the government has set for domestic thermal coal of RMB 500 to 580/MT.

This means that the Chinese authorities may once again encourage traders and power plants to limit thermal coal imports, to boost domestic demand and prices in the coming months.

'Never seen before' fall in South African coal rates

The South African thermal coal prices that had enjoyed premium against others in the winters of 2019 have crashed dramatically in the last one month. The popular grade, RB2 prices in the country have registered a plunge of almost 50% in last two months and touched a new low at USD 35-37/MT, FoB basis for May shipment.

India's daily average power output has been 20% lower than the three-year seasonal average since the government instated a nationwide lockdown on 25 March. This has subsequently weighed heavily on the country's coal consumption, as coal-fired generation makes up around 80% of national power generation.

With the fall in power demand there are increased supplies and stocks of thermal coal from domestic mining behemoth, Coal India (CIL). Aggregate coal stocks among utilities that rely wholly on or in part on imported supplies stood at 21.5 MnT in February, well above the 12.7 MnT during the same period in 2019. Apart from this the CEA data shows that the power plants across India have average coal stock for 31 days which was 17 days around the same time last year. Thus, it is likely that utilities' imports may be further dampened by comparatively full stocks with the plants.

Apart from this there is hardly any imported coal demand from sponge iron units and cement sector since the lockdown happened, further weighing down on thermal coal demand and prices in the country. India imported about 15.1 MnT of thermal coal in Mar'20 against 16.9 MnT in Feb'20 and 17.8 MnT in previous year's Mar'19 which is anticipated to fall further in Apr'20.