Impact of COVID-19 on Australian Thermal Coal Market

A drop in global demand due to the COVID-19 crisis and no substantial curtailment in domestic mining operations had a precarious impact on Australian thermal coal prices.

The country's spot prices for 6000 kacl/kg coal are being reported at USD 51/MT, FoB basis, down by USD 20/MT in a month and lowest since 2016.

On the other hand, the prices for 5500 kacl/kg thermal coal is hovering around USD 40-41/MT, FoB Newcastle basis.

Demand reduces drastically in key markets

Australia's biggest coal export market, Japan's thermal coal exports have dropped by 3% y-o-y in the first quarter of 2020 according to the nation's Ministry of Finance data.

Another key importer, South Korea's thermal coal imports have dropped to a ten year low in Q1 due to the combination of coronavirus and a temporary shutdown of many polluting coal plants.

On the other hand, in case of China, despite strong imports in Q1 2020 amid shut down of domestic mining operations, imports may likely slump going further due to the government's increased efforts to promote the domestic industry.

Peer pressure

Apart from subdued demand, the increased competition from global peers has further pressurised the Australian non-coking coal prices.

*South Africa's RB1 (6000 kacl/kg) and RB2 (5500 kacl/kg) grade coal prices are currently trending at USD 53 and USD 40, FoB RBCT port basis.

*Indonesia's popular 4800 GAR grade thermal coal is reported to be at USD 43/MT, FoB Kalimantan port basis.

Outlook

The year 2020 is likely to be a particularly bad year for thermal coal exporters globally due to:

*COVID-19's economic impacts which will further pressurise the Australian thermal coal demand from its key export markets - Japan, South Korea, China, and Taiwan.

*Increased risk to coal from plunging LNG (Liquified Natural Gas) prices that may encourage power generation to switch from coal to LNG.

In the long run eventually, thermal coal will have to see a permanent fall in demand due to energy transition to renewables amid growing concerns of air pollution and accelerating exit of global financial majors from the funding of new coal power projects.