Asian thermal coal markets look set to tighten in the upcoming peak-demand heating season in the region’s north as utilities are yet to stock up on the commodity, likely sparking a wave of orders once the first cold spell bites.
Analysts warned that such demand for re-stocking could come just as seasonal rainfalls disrupt mine production in major exporting nations such as Australia and Indonesia.
“Inventories of thermal coal are below average ratios of daily use … Buyers have not been out there aggressively trying to stockpile ahead of the [northern] winter,” Lachlan Shaw, UBS commodities analyst, said in a briefing in Sydney on Thursday (19/10).
In fact, inventory levels have fallen in many places.
“Inventory levels across key coal consuming countries declined [in past weeks], which are likely to be supportive of coal prices,” commodities brokerage Marex Spectron said this week in a note to clients.
Warmer ocean temperatures have increased the chances of cyclones developing near Australia during the November to April cyclone season, Australia’s weather bureau said this month.
“If we see the usual seasonal disruptions to supply in Australia from rains and storms, or indeed more disruptions than normal, the market will respond very quickly,” said Shaw at UBS.
The last time a strong storm hit Australia’s coal region was in March, when Cyclone Debbie barreled into Queensland state, knocking out coal railways and shutting mines.
Shaw said that utilities in North Asia’s core demand centers of China, Japan, South Korea and Taiwan had not fully stocked up because of high coal prices.
Spot cargo prices for thermal coal out of Australia’s Newcastle port, which acts as an Asian benchmark, have largely been trading between $90 and $100 since July.
Prices are not as high as they were this time last year when stockpiling was in full swing, with Newcastle coal at that time jumping to almost $115 per metric ton on soaring North Asian imports.
However, prices in the last three months have been higher than in the same period of 2015, indicating a relatively tight market, traders said.
Shipping data in Thomson Reuters Eikon shows a similar picture for demand. It indicates Australian and Indonesian supplies to China, Japan, South Korea and Taiwan of around 71 million tons since August, below the 74.6 million tons shipped between August and the end of October last year, but up from 66.9 million tons during that period in 2015.
Traders said that coal markets were also being buoyed as spot Asian prices for rival fuel liquefied natural gas have shot up by 55.5 percent since May to $8.55 per million British thermal units, their highest since last winter.
China’s state planner warned on Thursday that it expects gas supply and demand conditions to be “serious” this winter.