BHP Commentary and Outlook for Energy coal
Global mining giant BHP said “Energy coal prices were in a steady downtrend for most of the first half of financial year 2020. The gcNewc 6000 kcal/kg FOB Newcastle index averaged around $68/t over the half, down from around $88/t in the second half of financial 2019. Prices ranged from a high of around $77/t to a low of around $62/t. The 5500kcal index averaged around $50/t over the same period, with a high of around $53/t and a low of around $48/t. The spread between the spot indexes for gcNewc 6000 and 5500 averaged almost 30 per cent in the 2019 calendar year. The spread has remained at a broadly similar level since 2018, exhibiting resilience to the decline in base prices. Chinese demand for seaborne energy coal increased in calendar 2019, despite modest industrial demand for power and a clear uplift in hydro generation in the first half of the year. The market consensus was that the 281Mt inflow registered in calendar year 2018 would serve as an informal objective for total coal imports (including metallurgical and lignite) in calendar 2019. While that may have been true at a point in time, the reality is that total coal imports in calendar 2019 were around 300Mt, comfortably surpassing the 281 Mt of the prior year and the 271 Mt of the year before that.”
Contrary to the recent story in metallurgical coal, India saw strong growth in energy coal imports in calendar 2019 (+12 per cent YoY). The extended monsoon period22 resulted in an underwhelming performance by domestic supply (–1 per cent YoY in calendar 2019).
Demand from the Atlantic and Mediterranean regions has been weak. In part, this reflects commercially driven coal–to–gas switching in parts of Europe, where relatively cheap pipeline gas and LNG imports, plus a steep rise in the price of European Carbon Allowances23, have driven generator behaviour. The UK, Spanish and Italian markets were particularly soft. The recession in the Turkish economy has also had an impact on seaborne energy coal demand, with imports declining an estimated –2 per cent YoY in the calendar year–to–November. These trends were reflected in declining export volumes out of the United States and Colombia, the natural seaborne suppliers for these regions.
Longer–term, we expect total primary energy derived from coal (power and non–power) to expand at a compound rate slower than that of global population growth. Coal power is expected to progressively lose competitiveness to renewables on a new build basis in the developed world and in China. On a conservative estimate, the cross over point should have occurred in these major markets by the end of next decade. However, coal power is expected to retain competitiveness in India, (where the coal fleet is only around 10 years old on average), and other populous, low income emerging markets, for a much longer time.
Source : Strategic Research Institute