Thermal Coal
False Dawn
January 2020
Prices in Atlantic markets remain muted as cheap gas, abundant LNG and warm weather conspire to maintain pressure on coal prices, despite carbon prices remaining below their highs from mid-year.

The DES ARA price fell to an average of around US$52/t in December, down from November’s US$54/t, a level not seen since August. This fall has been mirrored by European gas prices as warm weather crimped a short-term rally in November. With declining coal burn, stocks at the main ARA ports remain abundant.

The December Newcastle spot price averaged around US$66/t FOB, down from November’s average of US$68/t. Newcastle high ash coal has averages around US$52/t, up from the previous month’s average of US$51/t. Price stability has been a theme for the month as day to day movements have settled down from the volatility seen in recent months. The uncertainty over China’s targeted level of imports for coal in 2019 has seen the spread between seaborne and domestic coal remain wide, as end-users that would otherwise switch to cheaper imported coal fail to do so for fear of exhausting their import quotas.

Elsewhere, Indonesia’s low energy coal is experiencing increased demand from Chinese utilities as price spreads favour imported coal, and importers have more certainty on Indonesian coal clearing customs in a timely manner. Indonesia coal price spot prices for FOB Kalimantan 4,200 coal averaged US$34/t, an increase of almost US$1/t month on month.

With Chinese buyers looking again at imported coal, China’s domestic market remains stagnated, as policies designed to encourage price stability of domestic coal continues to make an impact. Long-term supply contracts are making it difficult for traders of domestic coal to both secure offtakes from producers and sales to end-users, which were set at CNY535/t (US$76/t). This is resulting in domestic stocks at the northern coal ports continuing to decline. However, heavy snow in Northern China during the month is beginning to impact on the ability to move coal, which is expected to further impact stock levels at ports. If this continues, domestic prices are expected to rise, and further increase the competitiveness of imported coal in Southern China.

Credit Suisse has indicated that the bank will no longer finance any coal fired power plants. This is the second coal phaseout policy introduced by Credit Suisse as the bank have already announced to stop any form of financing that is specifically related to the development of new greenfield thermal coal mines. The move came after many other financial companies recently moving away from coal financing and growing their green-clean credentials. This green movement has been pressured by many investors, environment and regulators to ease the transition towards a low-carbon economy.