Seaborne coal market oversupplied by 40mn t: Noble

The seaborne thermal coal market is oversupplied by around 40mn t and a demand-supply imbalance could persist for much of this year as the Covid-19 pandemic dents economic activity.

This is the view of head of research at Hong Kong-based Noble Resources Rodrigo Echeverri, who said: "Without a significant supply reduction from major suppliers, it is hard to envisage how the market will balance in the short term." Echeverri's comments on a webinar organised by Coaltrans Conferences come even as some Indonesian coal mining firms start to cut production or are considering suspending mining operations as Asia-Pacific demand weakens amid lockdown measures in many countries.

Key consumer India has extended its 21-day lockdown — which started on 25 March — to 4 May, while economic recovery is still slow in China, which was one of the first countries to take strict measures to contain the virus.

Manufacturing activity has improved in China, as indicated by the V-shaped recovery in the March purchasing managers' index, but Echeverri said he is less optimistic about the country's demand prospects "given that the rest of the world is still in misery".

China is likely to import 210mn t of thermal coal in 2020, compared with 217mn t last year, said Echeverri, while India is expected to import 160mn t of coal this year, down from 169mn t in 2019. But he qualified this saying that much depended on how long lockdowns lasted in many countries.

"On the demand side, China and India are backing out from the market due to ample domestic supply," said Echeverri. Besides economic and policy pressures, coal demand in Japan, South Korea and Taiwan also faces fierce competition from gas, he said.

On the supply front, no exporting countries are adjusting production plans "on a significant level", something that "needs to happen to balance the market", he said.

Indonesia's coal exports are expected to drop by 8mn t on the year to 424mn t in 2020. Indonesian exports have slowed mildly so far this year, primarily due to weaker prices amid a lack of buying interest, rather than because of major supply disruptions.

Overall exports from Australia have not yet been obviously affected by the outbreak amid shipments to China, but thermal coal exports may drop by 4mn on the year to 208mn t, Echeverri said.

South African coal exports have softened somewhat amid that country's lockdown, but the curbs have not dented exports in a major way. Echeverri expects South Africa to export 74mn t of coal this year, down from 77mn t in 2019.

Meanwhile, Colombian exports have increased by 15pc so far this year from a year ago, partly due to an arbitrage opening in Asia given cheaper freight, he said. Many cargoes were also contracted late last year before the virus-related mining disruptions occurred. But Echeverri expects Colombia exports to dip by 1mn t on the year to 74mn t, while Russia's shipments are expected to remain flat this year at 137mn t.

"I do not think the coal industry has seen the worst of it," he told Argus after the webinar, adding that prices are expected to remain under pressure in the near to medium term. In some cases, such as low-CV Indonesian coal, producers were already selling at cost price or below, he said.

Fob Indonesia prices of NAR 3,800 kcal/kg (GAR 4,200 kcal/kg) coal were last assessed by Argus on 17 April at $27.77/t, down by $2.41/t on the previous week, and the lowest since April 2016.

By Saurabh Chaturvedi