Coal prices set to lose their spark

Mint Asia ST - - Otherviews - PALLAVI PENGONDA

Av­er­age

bench­mark New­cas­tle 6,000kcal/ kg coal prices de­clined 3% dur­ing the June quar­ter, com­pared with the March quar­ter, ow­ing to re­duced heat­ing de­mand af­ter win­ter in the north­ern hemi­sphere, says Fitch Rat­ings.

The rat­ing agency ex­pects the bench­mark price to fall over the next cou­ple of years as China and India meet de­mand with in­creased do­mes­tic pro­duc­tion, and seaborne coal ex­porters aim to add ca­pac­ity af­ter years of re­duc­tion. In­deed, India’s ther­mal coal im­ports have de­clined in re­cent years, helped by higher out­put from Coal India Ltd, or CIL ( see chart). The de­clin­ing trend in im­ports is ex­pected to con­tinue.

In fact, monthly vol­ume data from April to July from the Cen­tre for Mon­i­tor­ing In­dian Economy, or CMIE, on im­ports of coal, coke and bri­quettes shows year-on-year de­cline bar­ring April when growth was just 1.8%.

In­ter­est­ingly, higher prices have meant a much sharper in­crease in the im­port bill each month from April to July. A down­ward cor­rec­tion in prices, there­fore, is wel­come.

From the pre­vail­ing level of $102.1 per tonne in Au­gust 2017, Icra Ltd ex­pects the New­cas­tle 6300 GCV (gross calorific value) spot ther­mal coal price to av­er­age be­tween $75-80 per tonne for the re­main­der of cal­en­dar year 2017. “A weak out­look on seaborne ther­mal coal prices is likely to ad­versely im­pact do­mes­tic e-auc­tion coal prices as well, ben­e­fit­ting end-users in the power, ce­ment and steel sec­tors,” said Icra in a re­port last month.

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