China will be investing far more in coal power over the next five years, according to a government plan released Friday, that only modestly increased renewable ambitions. Environmentalists had been hoping China’s five-year NDP would provide a roadmap towards carbon neutrality by 2060.
However, the plan signals little urgency in cutting greenhouse gas emissions and revealingly also lacks a cap on total energy consumption. China plans to reduce carbon emissions per unit of GDP by 18%, being the same target as the previous five years. With overall economic growth likely around 6% in 2021, this allows for a net increase in carbon emissions. Sneaky, but clever.
Meanwhile, freight prices remain firm on both capesizes and panamaxes. Strength seems to be focused around Brazil in the Atlantic and Indonesia/China in the Pacific, in what is usually a quiet time of year.
In a briefing to parliament’s appropriations committee, Eskom has revealed it has been unable to renegotiate most of its identified high-cost coal contracts. Part of the deadlock has been reticence by suppliers to renegotiate whilst Eskom is seeking to cut monthly volumes, due to current high stock levels.
Eskom’s primary energy costs rose about 17% in 2019 with most high-cost coal contracts being less than two years long. One can only hope for a neutral, transparent spot market to emerge by then to assist the erstwhile power utility in reducing its costs.
The overall momentum pattern is still cross-current i.e. signal trend is still very positive whilst MACD bears down into negative territory. Just as the wind blowing opposite to the current creates choppy conditions, we would expect choppy sideways action to continue in the coal market.
However, as MACD is about to shift down into negative territory, we would expect downside moves to prevail for the next few weeks. Very rarely does coal momentum turn back up in positive territory. Besides, the bears haven’t even had a chance in the driver’s seat yet.
Thus, we would expect that a $80 price handle is more likely than $90 in the next few weeks, although $100 by Q3 is not out of the picture as the market and momentum subsequently recover.