Coronavirus to weigh on coal market: Noble

The seaborne coal market is likely to remain tightly supplied during the first half of 2020 as the coronavirus outbreak disrupts near-to-mid-term supply and demand dynamics, but then shift to oversupply during the second half of the year, according to Rodrigo Echeverri, head of research at Hong Kong-based Noble Resources.

The coronavirus outbreak "is a black-swan event that is likely to have a profound impact on not only China but also across the globe," Echeverri told the Coaltrans India conference.

The outbreak could result in China losing around 180mn t of demand this year, while output will be hit by about 200mn t, Echeverri said. China is likely to import 227mn t of thermal coal in 2020, compared to 230mn t last year. Indonesia's coal exports are expected to rise by 4mn t on the year to 436mn t this year, he said, without giving further details.

The spread of the coronavirus in China is affecting the country's economic activity, resulting in reduced power demand and lower coal consumption. The Chinese government's decision to extend the recent lunar new year holiday to try to contain the outbreak has affected demand and is likely to have a negative impact on China's imports this year.

Coal supply has been hampered more than demand in the short term, creating a "short-squeeze" in the market, Echeverri said.

Chinese mine closures because of the extended holiday, and subsequent restrictions on the movement of people, have curtailed Chinese coal output in recent weeks. China has now restored around 64pc of coal production capacity, as more mines answer calls from the central authorities to resume output.

But few mine workers appear to have returned to their jobs after the holiday compared with a year earlier, leaving questions over how quickly output can be restored, Echeverri said. The subsequent supply tightness has supported prices.

Fob Indonesia prices of GAR 4,200 kcal/kg were last assessed by Argus on 14 February at $36.54/t, up by 8¢/t on the previous week and the highest since May last year.

China's domestic coal output growth lagged thermal power generation during the fourth quarter of 2019 and continues to be soft, Echeverri said. And the wider economy is also expected to remain under pressure as the outbreak hits consumption.

"We expect the Chinese government to step in and inject liquidity into the system, but the effectiveness remains to be seen," he said.

The prospect of tighter supplies from Indonesia is also likely to weigh on near-term market conditions. Domestic consumption in Indonesia is expected to increase by around 20mn-30mn t from 2019 this year as new power generation capacity is brought on line, leaving little room for exports to increase.

Some economic indicators in India are starting to show signs of a recovery, which potentially bodes well for the country's power generation outlook. But coal burn in Europe has been on a downtrend for more than three years and this is likely to continue through 2020, Echeverri added.

By Saurabh Chaturvedi