Coal prices set to lose their spark
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Average benchmark Newcastle 6,000kcal/kg coal prices declined 3% during the June quarter, compared with the March quarter, owing to reduced heating demand after winter in the northern hemisphere, says Fitch Ratings.
The rating agency expects the benchmark price to fall over the next couple of years as China and India meet demand with increased domestic production, and seaborne coal exporters aim to add capacity after years of reduction.
Indeed, India’s thermal coal imports have declined in recent years, helped by higher output from Coal India Ltd, or CIL (see chart).
The declining trend in imports is expected to continue.
In fact, monthly volume data from April to July from the Centre for Monitoring Indian Economy, or CMIE, on imports of coal, coke and briquettes shows year-on-year decline barring April when growth was just 1.8%.
Interestingly, higher prices have meant a much sharper increase in the import bill each month from April to July.
A downward correction in prices, therefore, is welcome.
From the prevailing level of $102.1 per tonne in August 2017, Icra Ltd expects the Newcastle 6300 GCV (gross calorific value) spot thermal coal price to average between $75-80 per tonne for the remainder of calendar year 2017.
“A weak outlook on seaborne thermal coal prices is likely to adversely impact domestic e-auction coal prices as well, benefitting end-users in the power, cement and steel sectors,” said Icra in a report last month.