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Divergence Between High- and Low-Grade Thermal Coal Prices in APAC to Narrow

 Prices between high- and low-grade thermal coal in Asia-Pacific (APAC) have diverged since late March 2022, but Fitch Ratings expects the gap to narrow over time.

Prices of high-grade coal have been boosted by tight supply and geopolitical intensions, while prices of low-grade coal are constrained by weak demand from China. Newcastle 6,000kcal/kg grade coal reached USD380/tonne (t) in late June, a 105% premium over Newcastle 5,500kcal and close to the hard coking coal price of USD385/t. Fuel costs of north Asian power plants using liquefied natural gas are similar to those burning high-grade coal, suggesting limited upside for coal prices.

China’s benchmark Qinhuangdao 5,500kcal/kg price fell to the current CNY1,200/t and has found support at that level, from over CNY1,600/t in late March. The correction reflects weak demand; thermal power generation declined by 10.9% yoy in May 2022 due to lockdowns to contain Covid-19 outbreaks and strong hydropower generation. Coal inventories at power plants have also rebounded.

India’s power demand rebounded by 10% yoy in April 2022 and 20% in May 2022, driven by an economic recovery, as the Covid-19 pandemic ebbed, as well as high temperatures in many regions. This led to tight coal supply, with the nation’s average coal stock falling below eight days by end-April, despite a 15% rise in domestic coal production in 4M22. The government has ordered all power plants to use imported coal for 10% of their fuel to improve the availability of coal and meet the strong power demand. We expect the compulsory coal blending, which is likely to continue until 3Q22, to drive coal import growth during the year.
Source: Fitch Ratings