(Repeats with no changes to text. The opinions expressed here are those of the author, a columnist for Reuters.)
* Graphic of China, India coal imports vs. Newcastle price: reut.rs/2jC9LaH
LAUNCESTON, Australia, Sept 18 (Reuters) - It is increasingly popular to write obituaries for coal, with analysts, market watchers, investors and utility bosses leaping on the bandwagon, declaiming that the days of the polluting fuel are numbered.
Certainly the long-term outlook for coal is becoming less certain as more countries commit to ending, or severely curtailing, use of the fuel.
But while the doomsayers may eventually be proven correct, coal is enjoying a stellar year, particularly in Asia, the main demand centre.
The price of benchmark prices for thermal coal at Australia’s Newcastle Port slipped toward the end of last week, but still ended above $100 a tonne on Sept. 15.
The contract rose 45 percent from the closing low of $71.30 a tonne on May 16 to a peak of $103.50 on Sept. 12, providing a bonanza for miners in Australia and Indonesia, the two largest exporters of thermal coal used in power stations.
Metallurgical coal, used to make steel, hasn’t had quite as good a year as thermal, but is still holding above $200 a tonne.
Singapore Exchange contracts, priced against the Steel Index assessment of Australian cargoes, ended at $207 a tonne on Sept. 15, down from a cyclone-induced peak of $285 in early April, but largely steady from the $226.50 a tonne they fetched at the start of this year.
While coking coal has been affected by weather-related disruptions in Australia, the price of thermal coal has mostly been driven by Chinese import demand.
Chinese seaborne imports of both types of coal were 157 million tonnes in the first eight months of 2017, according to vessel-tracking and port data compiled by Thomson Reuters Supply Chain and Commodity Forecasts.
This was up 12.4 percent on the same period in 2016, with China importing an additional 17.3 million tonnes from the seaborne market.
That sounds significant, and it certainly provides some fundamental justification for the strong rally in thermal coal prices this year.
However, while China is the world’s largest coal importer, it is by no means the only major player in Asia.
India, which ranks second, has seen a sharp drop in seaborne coal imports this year, down to 117.9 million tonnes in the January-August period, a drop of 19.4 million tonnes from the same period in 2016.
Also down is fifth-ranked Taiwan, with seaborne imports at 42.6 million in the first eight months of 2017, a decline of 1.2 million from the same period a year ago.
Asia’s other two major importers, though, Japan and South Korea, have increased their overseas purchases.
Japan is vying with India for second place this year, importing 118.7 million tonnes from the seaborne market in the first eight months, up 2.8 million tonnes, while South Korea has imported 85.7 million, up 3.6 million.
Put together, Asia’s top five importers are up 3.1 million tonnes for coal shipments in the first eight months of the year compared to the same period of 2016.
In percentage terms, this is a gain of only 0.6 percent, which is hardly enough to justify a 45 percent rally in prices over the past four months.
SUPPLY DISRUPTIONS THE DRIVER?
There have been some supply issues from Australia and Indonesia related to weather events, with exports dropping in the first eight months of the year in both producers.
Australia exported 249.9 million tonnes of coal in the January-August period, down 10.2 million tonnes, while Indonesia’s exports slipped 11.9 million to 218 million.
This drop of a combined 22.1 million tonnes from the world’s top exporters may have more to do with the increase in prices than the strength of Chinese demand, even though the prevailing market narrative gives China a starring role in coal’s rally.
Certainly, higher prices have been needed to make exports to Asia from non-traditional suppliers viable.
The United States exported 50.3 million tonnes of coal in the first eight months of 2017, up from 43.6 million for the same period last year.
Of this, 19.7 million tonnes were shipped to Asia, up from 14.3 million for the first eight months of 2016.
This means that of the additional 6.7 million tonnes the United States exported in the January-August period, 5.4 million, or 80 percent, went to Asia.
Overall, it appears that while the additional demand from Asia has been positive for prices, the drop in supply seems more relevant.
This is especially the case with Australia, since its higher-quality coal has seen most of the increase in demand from China, Japan and South Korea.
India’s decline in imports will have a greater impact on Indonesia, which supplies cheaper, lower-grade fuel.
An example of this is the price of Eco Coal, a grade of lower-quality Indonesian coal with an energy value of 4,200 kilocalories per kilogram.
The monthly assessment by the Indonesian government COAL-ECO-ID stood at $45.35 a tonne as of Aug. 31, down from $53.46 at the end of last year, but up from the low of $41.46 for June.
This shows that the rally in coal prices isn’t universal in Asia, rather it’s mainly a reflection of higher demand for Australian coal, and other grades of similar quality.
The key question for the coal market is whether the sharp jump in Australian benchmark prices is justified by the lower exports and stronger demand in top Asian buyers?
Certainly, with prices above $100 a tonne for seaborne thermal coal, a supply response becomes inevitable, it’s just a matter of time.
Editing by Tom Hogue
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