South Korean coal prices dip but cold limits downside

The South Korean coal market retreated this week, moving in tandem with regional coal prices, and responding to market intervention in China, the largest importer of seaborne coal. But an early cold snap across northeast Asia and a stronger power demand outlook limited the downside in South Korea.

China's main economic planning agency the NDRC announced a plan to regulate thermal coal prices, in an effort to cool domestic prices that are at historic highs amid tight availability. This weighed on global coal prices this week.

Argus assessed NAR 5,800 kcal/kg coal at $185.83/t fob Newcastle and $223.74/t cfr South Korea this week, down by $22.98/t and $4.90/t on the week, respectively.

The delivered price fell less sharply as demand remains firm in South Korea amid an early winter cold spell, while increasing exposure to spiralling spot LNG prices prompted the government to roll back autumn coal-fired capacity restrictions last week. The temperature in South Korea's capital Seoul dropped to as low as 1.3°C on 17 October, a 64-year low for the time of year, according to data published by the Korea Meteorological Administration (KMA).

And the early cold boosted power demand in South Korea this week, with average daily peak power demand increasing by 130MW on the week to 69.7GW over 18-21 October. This was up by 4.4GW on the year and around 5.8GW above the 2016-19 pre-pandemic average for the same period (see chart).

Based on up-to-date daily peak power demand and 17.6GW of scheduled nuclear availability in October, South Korea's power demand could grow by more than 7.5pc on the year this month, which could boost thermal generation by more than 10.5pc on the year, according to Argus analysis.

The latest plant maintenance schedule published by Korea Power Exchange shows South Korea's state-owned coal-fired availability will average 21.3GW this week, compared with a previous expectation of 21.5GW, based on last week's schedule. The downward revision is the result of additional maintenance being added, although no plants are scheduled to go off line for voluntary restriction purposes.

The KMA projects a 50pc chance of lower than usual temperatures during 1-7 November and a 40pc chance for 8-28 November, according to the latest one-month weather outlook published on 21 October.

Meanwhile, state-owned Korea Midland Power (Komipo) is scheduled to close a tender on 25 October seeking 520,000t of minimum NAR 5,000 kcal/kg for loadings in 2022. Independent power producer GSDEP also plans to procure up to 240,000t of minimum NAR 5,300 kcal/kg coal for loading next year, in a tender closing on 27 October.

Weak coal demand outlook to persist in Japan

Weakness in regional coal prices also weighed on implied landed coal prices for Japan this week, while there was more thermal power capacity added this week amid colder weather across northeast Asia.

Daily power demand in Japan fell by 7pc on the week to 90.6GW over the 18-20 October period, although this was still up by 5pc compared with the same period a year earlier. Japanese power demand has trended higher on the year since mid-September amid early cold weather, although it largely remained within the pre-pandemic range (see chart).

Temperatures in Japan were forecast to remain below the seasonal average for most days during the next fortnight by as much as 5.01°C, according to Speedwell weather data.

Cooler weather year-on-year encouraged the country to add around 2.7GW more thermal generation capacity for the 18-24 October period on the week, but coal-fired availability increased by only 30MW as recent strength in spot coal prices continued to erode the fuel's competitive advantage over utilities' oil-linked LNG term supply.

Japan planned to add 2.3GW more gas and 200MW more oil-fired capacity during the same period, respectively, according to the latest plant operational status notice issued by the Japan Electric Power Exchange.

Coal-fired margins halved this week as a result of the fall in Japanese wholesale power prices and strong coal prices. Theoretical profits from a 44pc-efficient coal-fired power unit averaged ¥1,480/MWh over 15-21 October, down by 54pc from a week earlier, based on the day-ahead system price from the Japan Electric Power Exchange and Argus' NAR 6,000 kcal/kg fob Newcastle spot coal and freight assessments.

Longer term, a 4.4GW year-on-year rise in nuclear availability to 7.8GW during October-March could also weigh on thermal generation and have a greater impact on coal than gas, given current coal-to-gas fuel switch economics.

Meanwhile, LNG stocks at Japan's main power utilities stood at a five-year high for the time of year of 2.3mn t as of 15 October, although they were around 200,000t below the level at the end of September, according to data published by the trade and industry ministry Meti. The ministry expects the country should be able to prevent any power shortage this winter, as long as power demand grows within an expected range and utilities continue to import LNG as planned.

Weekly Kepco coal-fired availability GW

Seven-day avg. South Korean peak power demand GW

Seven-day avg. Japanese power demand GW