Indonesian low-CV thermal coal prices correct by $2/t on China's waned interest

The Indonesian Coal Index (ICI) for low-calorific value (CV) coal decreased by $2/tonne (t) for 4,200 GAR and $2.1/t for 5,000 GAR week-on-week (w-o-w). The same are currently assessed at $53.6/t and $77.3/t, FoB, respectively.

Weak demand from China due to correction in domestic thermal coal prices since the past few days and sluggish demand from India struggling with the Covid-led restrictions coupled with resilient vessel freights weighed on Indonesian thermal coal prices.

However, on the supply side, heavy rains in Kalimantan provinces continued to disrupt production and coal transportation, further tightening limited coal supply from the country which led to a dramatic fall in prices. Cargo availability also remained under pressure last week, as per market sources.

Chinese buyers watch out for government intervention:

The Chinese government has been recently concerned about the sharp rise in commodity prices that would raise inflation fears. This may, further dent the economic growth as rallying raw material prices are forcing manufacturers to raise the costs of finished goods.
A few days back, China's National Development and Reform Commission summoned leaders of top metals producing companies over soaring commodity prices. It said that the government would show "zero tolerance" for monopoly behaviour and hoarding of metals and will also impose severe punishment for violations.

This resulted in correction in domestic thermal coal prices in China, as 5,500 NAR coal prices are currently being heard at RMB 800/t ($126/t) against RMB 850/t ($133/t) on 20 May'21.

Amidst the downtrend in domestic coal prices, several Chinese utilities have adopted a wait-and-watch policy with regards to imports, in hope of further correction in domestic thermal coal prices.

Subdued Indian demand alongside elevated vessel freights:

The sharp rise in Indonesian coal prices over the last two months had already dented market sentiment in the Indian power, textile, chemicals, and cement industries, which uses imported coal.

Owing to reduced profitability and weak sales volumes this year, several industries were heard to have shifted to domestic coal or increased blending of imported and domestic coals.

"If the raw material prices (thermal coal) keep on rising, despite electricity prices being constant in case of long-term contracts, operating plants will become difficult… The cost gets non-sustainable and then plants would have no option but to operate at a loss or halt production for some time," a Mumbai-based trader said.

Indian power utilities have thermal coal stock of 28.1 million tonnes (mn t) which is quite sufficient for 16 days, as per the National Power Plant data.

The escalated freight rates, along with lower availability of vessels willing to come in to India amidst Covid restrictions further continue to affect availability of thermal coal for stocking and sales purposes.

According to market participants, portside trades of Indonesian coal has reduced over the last few weeks as only pre-booked vessels are making their way to the country.

Portside prices for 4,200 GAR grade thermal coal remained largely stable at INR 5,200/t ex-Kandla, and for 5,000 GAR at INR 6,500/t ex-Kandla.

As per CoalMint's vessel updates, 2.03 mn t of thermal coal stock will arrive from Indonesia to Indian ports during 24 May'21- 1 June'21. Mundra Port is set to receive the highest volume at 0.5 mn t, while Navlakhi Port will get 0.4 mn t followed by Kandla Port at 53,150 tonnes.

Short-term outlook

According to CoalMint's analysis, Indonesian thermal coal prices are likely to be stable for a brief period as Chinese traders turn cautious amidst rising intervention of the Chinese government and anticipation of a further decline in China's domestic thermal coal prices.

However, strong demand from the country during summers and shipments delays from Kalimantan due to heavy rains are likely to support any dramatic fall in Indonesian thermal coal prices.