June 6, 2023 - The oversupply of coal globally and continued subdued demand have pushed sellers and traders from exporting nations to bank on China, the world's largest consumer, to absorb excessive volumes, an analysis by S&P Global Commodity Insights showed.

While China and India have largely been relying on domestic production to meet their requirements, overstocking in Europe and lower-than-expected winter demand drove the continent to nearly stop coal imports in Q1 2023.

As a result, global exporters have been flocking to the high consumption regions in Asia, creating more supply in the region which is already stuffed with coal from Indonesia, Australia, Russia and South Africa.

"China is in the midst of economy recovery and thermal power becomes inevitable as it can help to recover in a faster pace. Coal still remains the primary source of energy in China which is attracting the whole world," a Singapore-based trader, who deals with the China market, said.

"Electricity demand is increasing gradually, faster than the conversion of coal to other green energy. This has resulted in continued high coal consumption in China, therefore it needs to import to balance the domestic coal price."

Prices suffer amid excess supply

Following weak Asian demand for around 10 weeks now, thermal coal prices have fallen to levels not seen so far this year.

Platts, part of S&P Global, assessed the FOB Kalimantan 4,200 kcal/kg GAR at $60/mt June 5, an year-to-date low. Similarly, the Newcastle 5,500 kcal/kg NAR with 23% ash was assessed at $88/mt June 5, lowest so far this year.

On the other hand, South African thermal coal prices continued to plummet as Europe-based end-users purchased alternative origins of supply, despite Richard's Bay coal being heavily discounted.

Platts assessed the FOB Richards Bay 5,500 kcal/kg NAR at $89.15/mt June 5, down from $264.25/mt during the same period a year ago.

Meanwhile, market participants in Europe have also been looking to tap the Asian market, particularly China, to resell their coal amid decent thermal coal stockpile at European ports and lower coal demand due to strong natural gas storage levels and renewable energy generation, S&P Global reported May 24.

According to sources, Europe has overstocked about 20 million mt of coal but lower-than-expected winter demand due to less severe temperatures led to more stockpiles.

"I think only for now the circumstances are such that sellers want to sell to China as it is the only big market which can absorb the volumes and that too without the hassles of going through tenders unlike other big markets like Japan, South Korea or Taiwan," an Indonesia-based trader said.

Domestic China coal values dwindle

Analysts at S&P Global said imported coal is under pressure amid weaker Chinese domestic coal price and buyers are not willing to lift their bids as they have ample stocks at power plants.

With lower industrial demand and less severe summers in China, domestic coal prices have also taken a beating, raising competition with global seaborne coal.

According to sources, domestic 5,500 kcal/kg NAR coal was heard to have been priced at Yuan 750/mt-Yuan 780/mt levels ($105/mt-$110/mt), down from Yuan 850/mt-Yuan 880/mt levels two to three weeks ago. A similar grade coal from Russia Pacific would cost anywhere between $118-$120/mt currently.

"Power demand is much lesser than the domestic supply. Moreover, because of imported coal, stockpiles at ports are also very high so even if domestic coal supply dwindles a bit, there are enough stocks to meet the near-term demand," an Indonesia-based miner said.

Stocks at China's Caofeidian port stood at 13.45 million mt as of June 6, down from 14.27 million mt June 1, according to a source. Stocks at the Jingtang port were at 7.60 million mt, up from 7.46 million mt May 18.

According to S&P Global analysts, output from Chinese domestic coal mines remained high, and the amount of imported coal has exceeded expectations so far this year, keeping supply loose.

"[We] expect an uptick in demand for imported coal when coal stocks draw down during summer," they noted.

"These are extraordinary times when the trade flows are adjusting to accommodate the oversupply situation. But once things are back to normal, miners will again go back to the traditional trade flows majorly since price-wise only traditional markets will make sense for them," the Indonesia-based trader said.