India, China demand boost low-rank thermal coal prices in Asia: Russell

India, China demand boost low-rank thermal coal prices in Asia: Russell

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NEW DELHI — Signs of stronger import demand from India have arrested the decline in price of the thermal coal grades most commonly sought by the world’s second-biggest importer of the fuel used to generate electricity.

The price of low-grade Indonesian coal with an energy content of 4,200 kilocalories per kg (kcal/kg) , as assessed by commodity price reporting agency Argus, increased to $73.42 a tonne in the week to Feb. 24.

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This was up 7.7% from the 13-month low of $68.18 a tonne hit the prior week and was the first weekly gain since the seven days that ended on Dec. 23.

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This grade of coal is usually bought by utilities in China, which use it as a blending feedstock with domestic supplies, and also by power generators in India, who are attracted by its relatively lower price compared with the higher grades supplied by Australia and South Africa.

In recent months, Indian buyers have been limited in the volume of coal they have been importing from Indonesia, preferring to buy steeply discounted Russian cargoes, or supplies from Australia.

But signs of a possible electricity shortfall as the peak summer demand period approaches in India has prompted utilities that rely on imported coal to switch back to Indonesian cargoes.

India last week invoked an emergency measure to force coal-fired plants that run on imported fuel to maximize output ahead of expected shortages in summer.

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India has about 17 gigawatts of generation that relies on coal imports and the directive, which comes into effect on March 16, means power plants will have time to import coal ahead of the expected surge in consumption.

Even without this boost to imports, India’s coal arrivals are heading higher, with data from commodity analysts Kpler pointing to a rise in thermal coal imports to 10.19 million tonnes in February, up from 9.71 million tonnes in January and the most since November.

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The increase is being driven by higher volumes from Indonesia, with imports from the world’s largest exporter of thermal coal expected to be 6.09 million tonnes in February, up from 4.36 million in January.

AUSTRALIAN IMPORTS

It is also possible that India will seek to boost imports from Australia, especially of the 5,500 kcal/kg grade that it has been buying.

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This grade has also been slumping in price in recent months, but recorded its first weekly gain since mid-January in the seven days to Feb. 25, rising to $118.55 a tonne, up from a 13-month low of $117.72.

The 5,500 kcal/kg Australian coal also used to be popular with buyers in China, but the trade collapsed after Beijing imposed an informal ban on imports from Australia in mid-2020 as part of a bilateral political dispute.

This ban was lifted last month and there are already some signs that Chinese utilities are resuming imports of Australian coal, although mainly coking coal used to make steel.

Nonetheless, Kpler has tracked about 584,000 tonnes of Australian thermal coal arriving this month at Chinese ports, and while this is a far cry from the pre-ban levels of several million tonnes a month, it may just be enough to lend support to the 5,500 kcal/kg grade.

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Certainly, the 5,500 kcal/kg Australian grade, which underpins the long-standing regional benchmark Newcastle Index , has yet to show the reversal of its recent price declines.

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The index ended at $187.55 a tonne in the week to Feb. 24, the weakest since Dec. 31, 2021. It has now declined for seven straight weeks.

The drop in higher-grade thermal coal most likely reflects the fact that major buyers of this fuel type, Japan and South Korea, are starting to exit the peak winter demand and enter the spring shoulder season before air-conditioning ramps up electricity consumption in the summer.

Overall, the outlook for seaborne thermal coal in Asia is somewhat split, with Indian and Chinese demand likely to support prices for lower-grade Indonesian and Australian grades, but the higher quality fuel susceptible to seasonal slowing in its major markets.

The opinions expressed here are those of the author, a columnist for Reuters.

(Editing by Robert Birsel)

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