As the U.N. COP26 climate summit gets under way in Glasgow amid dire warnings https://www.reuters.com/business/cop over the planet's future, the immediate focus in Asia is getting more coal to burn at cheaper prices.
China fired the big guns at its coal markets last week. It unleashed a raft of measures designed to lower prices and boost supply, making a more determined effort to deflate coal than it did in earlier moves aimed at cutting the prices of some metals and crude oil.
Beijing's efforts have paid some dividends, with both coal futures and physical spot prices tumbling last week. But they remain well above levels the authorities are believed to deem comfortable for both miners and power utilities.
Zhengzhou Commodity Exchange thermal coal futures dropped as low as 941 yuan ($147) a tonne on Oct. 29, down 52.5% from the record 1,982 yuan reached on Oct. 19.
Spot thermal coal priced at the northern hub of Qinhuangdao also slumped last week, ending at 1,500 yuan a tonne on Oct. 29, down 41% from its record 2,545 yuan, also hit on Oct. 19.
While these declines are dramatic and rapid, it still leaves both paper and physical coal well above the 530-580 yuan a tonne level long viewed by the market as the official preferred zone for prices.
China's state planner, the National Development and Reform Commission (NDRC), has said that its investigations have shown that "coal production costs are significantly lower than current spot coal prices" and there is room for further declines.
Some media reports have suggested that the NDRC wants to cap the price of benchmark 5,500 kilocalorie per kilogram (kcal/kg) coal at 440 yuan per tonne at the mine head, with a potential variance of 20% both higher and lower to take account of market conditions.
In effect this would put a ceiling on coal prices of 528 yuan a tonne. That's about a third of the current spot price at Qinhuangdao and half the front-month futures contract, which expires on Jan. 10.
In other words, China, the world's biggest producer, consumer and importer of coal, still has some way to go to lower coal prices. If the authorities are determined to achieve this, it will likely take ongoing efforts to regulate spot pricing providers.
Coal supply, both domestic and from imports, also appears to be moving higher. The NDRC said on Oct. 29 that inventories have risen to more than 100 million tonnes, up by almost 25 million tonnes from the end of September, as average daily supply exceeds consumption.
October's imports are also set to increase from September, with commodity consultants Kpler tracking arrivals of 29.6 million tonnes of all grades of coal in the month, up from 27.9 million the prior month.
Outside China, the coal crunch also appears to be easing, Domestic output in India is increasing, having been hit in prior months by the coronavirus pandemic disrupting mining and transportation.
India, the second-biggest buyer of the fuel, also is set for higher imports in October, with Kpler estimating arrival of 15.51 million tonnes, up from 13.73 million in September.
However, imports still remain well below levels of around 20 million tonnes per month that prevailed prior to the pandemic that started to hit Asia's economies in early 2020.
Japan, Asia's third-biggest importer, also boosted October arrivals, with Kpler estimating arrivals of 16.9 million tonnes, up from 16.33 million in September, and the most since January 2020.
The increase in imports came despite record high spot prices for thermal coal, although cargoes arriving in October would have been bought prior to the all-time peaks hit in the middle of the month.
The benchmark Australian thermal coal price - the Newcastle Weekly Index, as assessed by commodity price reporting agency Argus - dropped to $199.81 a tonne in the week to Oct. 29 down 21% from its Oct. 15 high of $252.72.
Lower-grade Indonesian coal with an energy rating of 4,200 kcal/kg, also dropped last week, falling to $135.40 a tonne, some 5.4% below its Oct. 15 peak of $143.14.
The relative outperformance of Indonesian coal is likely a reflection of ongoing strong Chinese demand. That has ramped up in recent months, after Beijing effectively banned buying from Australia as part of an ongoing political dispute with Canberra.
Overall, there are signs that the tightness in supply that propelled coal to record highs in Asia are easing. But for prices to drop back to where they were a year ago it will likely take even more intervention from authorities in China.
© 2023 Thomson/Reuters. All rights reserved.