Source: Institute for Energy Economics and Financial Analysis
Slowing economic growth in China is weighing on demand expectations for thermal coal in the world’s biggest market for the fuel, while global moves towards cleaner energy are compounding problems arising from a glut in supply.
This supply-demand tandem is likely to keep prices for coal used in power plants and the manufacture of cement under pressure in coming months and perhaps longer, industry sources said as Asia’s biggest coal conference got underway.
Prices for benchmark premium Australian coal out of Newcastle hit their weakest since September 2016 last week at $70.78 per tonne and are likely to fall further given a slowing global economy.
In top consumer China, factory activity weakened in April and May, hit hard by a bruising trade war with the United States. That accounts for some, but hardly all, of the 4.9% fall in China’s coal-fired power generation in May compared with the year before, said analyst Helen Lau at Argonaut in Hong Kong. “Weak consumption of thermal coal is mainly because of increasing competition from hydro and other clean energy,” she said in a report.
“Thermal coal is under huge pressure at this moment, even though demand should pick up during summertime,” said a coal trader based in Jingtang port. Jingtang is a major coal-receiving port in northern China.
A major culprit is the expansion of the use of cheap natural gas in Europe, said an energy trader in Singapore. “Cheap gas in the United States is moving into Europe and that is pushing coal from South Africa and Colombia across to Asia. Russia has also ramped up selling in the Pacific basin,” he said.