Nena News

ASIA-PACIFIC COAL – China’s hydropower curbs spur demand

(Montel) Asia-Pacific coal prices – particularly in China – remained supported this week as a shortfall in Chinese hydropower generation and Indian restocking spurred coal demand, participants said on Wednesday.

The Global Coal daily Newcastle (Australia) rolling index was last assessed at USD 80.18/t, down by a marginal 0.9% week on week.

Yet China’s Zhengzhou September 2017 thermal coal futures contract last settled up by 0.5% on the week at CNY 571.20/t (USD 84/t).

Heavy rains in China have resulted in dam restrictions, due to widespread flooding, cutting hydropower generation capacity by more than 60%, according to reports from the region.

Most notably, the 22.5 GW Three Gorges Dam – the world’s largest power station – has cut output from 18.1 GW to just 6 GW.

“In the short term this could lead to a stronger July than expected for thermal power generation, however, it will also serve to replenish reservoirs serving other hydropower projects in the region,” said shipbroker SSY in a note.

Hydropower accounted for around 8% of Chinese power production in May, it added.

“We’re not seeing much more physical demand yet, but there has been a bit of life over the past few days [on the physical market],” said a Singapore-based coal broker, citing the Chinese hydro issues as the reason.

“People realise they need coal, and this is pushing up domestic prices,” he said.

“The situation has a high impact in the short term, as the equivalent generation of 13 coal-fired power plants has been lost, but the long term impact is bearish, because water will accumulate upstream,” said a coal analyst with a Singapore-based trading house.

Indian inventories
Participants noted some restocking activity in India, after inventories at 112 coal-fired plants dropped to a multi-year low of 16.6m tonnes in mid-June. Inventories were pegged last at 17.8m tonnes, up by 6.6% week on week, according to the Central Electricity Authority,

“Cumulative monsoon rainfall was normal in June, but coal inventories at power plants are low,” said Diana Bacila, senior analyst at Oslo-based Nena.

“A potential weakening monsoon will require higher coal use in power, which would have to come from the seaborne market,” she said, noting this would likely be sourced from Indonesia, as South Africa’s main rail route to the key export hub of Richards Bay will undergo 10 days of summer maintenance from 11 July.

Price indicators (week on week change):
Global Coal Newcastle index – USD 80.18/t (USD -0.76)
Global Coal Richards Bay index – USD 78.64/t (USD 1.82)
Zhengzhou (ZC) thermal coal futures, September contract – CNY 571.20/t (CNY 2.60)

Stocks and Queues:
PWCS Newcastle (Australia) stocks – 1.75m tonnes (0.28m tonnes)
PWCS vessel queue – 14 vessels (-6 vessels)
Port Kembla Coal Terminal (Australia) stocks – 0.37m tonnes (0.09m tonnes)
Kembla vessel queue – No vessels (unchanged)
Indian power plant stocks – 17.8m tonnes (1.1m tonnes)

Reporting by:
Laurence Walker
09:02, Wednesday, 5 July 2017