BMI has increased its thermal coal price forecast for this year to $100/t from $85/t previously as a result of tight supply from exporting countries and higher demand on the back of hot weather in importing countries.
The research company said in a statement on Tuesday that Newcastle coal prices have reached seven-year highs in July and would remain supported over the remainder of the year as supply issues remain.
Further, a hotter-than-usual summer in China and restocking of coal by utilities in Japan dominated the demand picture, while domestic demand in South Africa and Indonesia and heavy rains in the latter restricted global supply.
“We expect prices to remain supported over the third quarter before a slight pullback in the fourth quarter, stemming from a better fundamental outlook as demand stabilises and supply improves, although low stocks of thermal coal in China will prevent a collapse in prices,” BMI said in a statement.
Beyond 2019, BMI expects coal prices to edge higher again as the market deficit is likely to widen from 187-million tonnes in 2019 to 922-million tonnes by 2027.
Although global coal production growth will remain positive and average 0.9% year-on-year between 2019 and 2027, BMI expects demand growth to prove even stronger at 1.9% year-on-year over that period.
“Asia will be the principal driver of global demand growth, with demand in the US and Europe largely stagnant.”
In absolute volume terms, China and India will have the largest impact on the global coal market balance. In China, the surge in imports that occurred between 2015 and 2017, as a result of dramatic domestic production curbs, was a temporary phenomenon.
“Thermal coal production in China will most likely stagnate at 0.5% growth a year from 2019 onwards, but not decline, as new coal mines in inner Mongolia, Shaanxi and Shanxi provinces, offset mine closures in the rest of the country,” BMI noted.
It further pointed out that China’s yearly thermal coal production deficit was expected to stabilise at around 188-million tonnes in the coming years as authorities balance the opposing priorities of coal sector rationalisation and power sector security and profitability.
India will be a greater driver of global coal market deficits than China and BMI expects production by State utility Coal India, which accounts for around 90% of domestic output, to underwhelm government expectations.
“We forecast India's thermal coal output to grow by an average annual rate of 3.9% between 2019 and 2027. While solid, this expansion in output will fail to keep pace with the average annual consumption growth of 5.9%, the latter driven by an ambitious coal power plant project pipeline.
BMI stressed that risks to its price outlook were more pronounced on the downside.
“Ultimately, we expect factors including resilient Chinese funding for overseas projects, energy security priorities and the political difficulty of raising energy tariffs to pay for cleaner but more expensive sources of electricity, will combine to underpin the resilient global coal electricity generation growth that we forecast.”