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Thermal Coal Price Outlook - DIIS

Coal News - Published on Tue, 07 Jan 2020

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Australia’s Department of Industry, Innovation and Science’s Resources and Energy Quarterly December 2019 said “The thermal coal benchmark spot price, Newcastle 6,000 kcal/kg Net As Received, has steadied after a sharp (47 per cent) fall to US$60 a tonne in the year to end August 2019. The price has traded in a relatively narrow US$60 band since then, and looks likely to average $64 a tonne in the December quarter of 2019. Weak global demand placed downward pressure on the thermal coal price in the first eight months of 2019: persistently low spot LNG prices encouraged some coal-to-gas switching, predominantly in Europe, dampening demand for thermal coal imports. While Chinese imports have been resilient, the prospect of tighter import controls has weighed on buying sentiment as 2020 approaches. Supply cuts from the US, Colombia and Indonesia appear to have helped steady the price, after large amounts of thermal coal flowed in to seaborne markets in late 2018 and the first half of 2019.

Thermal coal price forecast to remain subdued over the outlook period Strong seasonal (northern hemisphere winter) demand is likely to underpin the price over the next month or so. Strong short-term Japanese demand is expected, as nuclear reactors close for planned maintenance until early 2020. Thereafter, the market will be impacted by the pace of coal-fired power generation in Asia, in turn influenced by reduced economic activity.

Developments in China’s import policies and domestic coal markets are likely to drive ongoing volatility in thermal coal imports and prices. The differential between Australian export prices and domestic prices in China has declined in recent weeks, after reaching 7-year highs in July. This suggests that the differential reached a level such that Chinese utilities became more prepared to import and wear the risk of long customs delays rather than use domestic coal their incremental needs.

Having fallen to insignificant levels in the second half of 2019, the differential between Newcastle 5,500 kcal/kg NAR and Indonesian 4,700 kcal/kg NAR suggests that Australian exporters of low to mid energy coal might be able to limit (further) market share losses to Indonesian miners over the next quarter.

Production cuts from high-cost (North and South) American producers will act to tighten the market. The price is forecast to move in a US$55-85 a tonne range over the outlook period, down from an average of US$105 a tonne in 2018.

Contract prices bUnit20182019 s2020 f2021 f
- nominalUS$/t110957274
real cUS$/t112957171
Spot prices dUnit20182019 s2020 f2021 f
- nominalUS$/t105747072
real eUS$/t107746969

b Japanese Fiscal Year (JFY), starting April 1, fob Australia basis. Australia-Japan average contract price assessment for steaming coal with a calorific value of 6700 kcal/kg gross air dried
c In current JFY US dollars; d fob Newcastle 6000Kcal net as received
e In 2019 US dollars
f Forecast
h In 2019-20 Australian dollars
s Estimate.
Source: ABS (2019) International Trade in Goods and Services, Australia, Cat. No. 5368.0; IHS (2019); NSW Coal Services (2019); Queensland Department of Natural Resources and Mines (2019); Company Reports; Department of Industry, Innovation and Science (2019)

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Posted By : Rabi Wangkhem on Tue, 07 Jan 2020
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