Weekly Coal Index Report
Spot paper coal prices hardly moved on the week, although the physical discount increased across most export grades.
The bearish sentiment is hard to shake now, and the forward curves also reflect this, having flattened, and significantly moderated in their price outlook vs. 3 months ago. Several researchers are predicting huge increases in South East Asian coal demand forward to 2025, although we remain a bit more circumspect.
What is clear is that demand for higher quality coals (RB3 and up) will continue and earn South African and Australian etc. producers a premium vs. lower quality coals.
European demand appears set to decline further, even with high natgas and low carbon prices. Export ports to Europe such as Russia’s Murmansk are re-considering plans to expand further.
Within SA, Eskom last week reported that its unit cost of coal had risen some 17% in 2020 to around R397/MWh (2019 = R339/MWh, 2018 = R309/MWh). In our analysis, this represents around R680/ton for an average 19.08 MJ/kg coal, higher even than the current higher grade RB1 netback to Witbank!
Perhaps the + in those cost+ contracts is getting larger, even as export-bound coal prices decline. We thus must make our point once more – a spot market for SA domestic coal is going to provide the fairest, most transparent, and most flexible means of procurement going forward.
Technically we are courting a potentially significant break downwards in the RB1 price. However, there is still time for an upwards bounce this week and escape the downdraft.
The week is likely to be noisy amidst US Presidential elections, so coal prices could be muted and play a wait-and-see game instead.
If we do not see a rally fairly soon, or at least a drift upwards, we could instead start anticipating a severe threat to the medium cost producers, the very weak longs (upper quartile of cost curve) having already thrown in the towel and shut down production.
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