March 3, 2020 / 5:42 AM / a month ago

COLUMN-Seaborne coal's struggles in Asia are more than just China coronavirus: Russell

(The opinions expressed here are those of the author, a columnist for Reuters.)

By Clyde Russell

LAUNCESTON, Australia, March 3 (Reuters) - Asia’s seaborne coal markets stumbled in February and it appears the coronavirus outbreak in China may dodge most of the blame, with the weakness concentrated in other major importers of the polluting fuel.

South Korea’s imports of both thermal and coking coal were particularly hard hit, dropping to 6.9 million tonnes in February from 11.4 million in January and 9.4 million in February 2019, according to vessel-tracking and port data compiled by Refinitiv.

That was the lowest monthly imports for South Korea since Refinitiv started vessel-tracking in January 2015.

South Korea’s weak coal demand was sparked by the country’s decision to close up to 15 coal-fired power plants between December and February in order to limit air pollution over winter.

South Korea, Asia’s fourth-largest economy, has about 60 coal-fired power plants, generating 40% of the country’s electricity, with nuclear holding a 30% share and natural gas around 20%.

The bad news for coal exporters is that South Korea will extend the closure of coal-fired plants this month, with the Energy Ministry saying on March 1 that up to 28 plants will be idled this month.

The longer-term prognosis may be equally bleak, with plans to reduce coal generation even further in response to growing public calls for cleaner air.

India’s coal imports also slipped in February, with Refinitiv data showing a total of 16.4 million tonnes of both thermal and coking coal arriving, down from 18.2 million in January.

India, the world’s second-biggest coal importer behind China, is struggling with softer economic growth, which is curtailing electricity demand growth.

In addition, some coastal power plants that rely on imported coal are struggling to sell electricity at prices high enough to make running the generators financially viable.

Pollution isn’t yet a major reason why India’s coal imports are softer, but it probably should be given the widespread issues with air quality, especially in major cities such as New Delhi and Mumbai.

A warmer-than-usual winter, ongoing economic struggles and low prices for spot liquefied natural gas (LNG) are the most likely reason for Japan’s lower coal imports.

Refinitiv data showed the world’s third-largest coal importer brought in 13.3 million tonnes in February, down from January’s 16 million and 13.8 million in February 2019.

CHINA DISTORTIONS

Getting a handle on China’s imports is a little more tricky, given the combination of the mild winter, pollution curbs and the impact of the coronavirus, factors that are both pulling and pushing on coal demand.

The raw data show that China’s seaborne imports were 19.9 million tonnes in February, down from January’s 25.6 million.

However, they were higher than last February’s 17.8 million tonnes, suggesting that the coronavirus may have actually boosted Chinese demand given the challenges that domestic mines and transport systems had restarting after the Lunar New Year holidays as the coronavirus epidemic led to quarantines and shutdowns.

Now that there are early signs that China may just be emerging from the worst of the virus, it will be interesting to see if domestic output ramps up by enough to meet the needs of an economy that is building back up, or whether there will be a call on imports.

Certainly, seaborne prices in the main exporting countries of Australia and Indonesia aren’t pointing to a pick up demand across Asia.

The weekly Newcastle index for thermal coal , as assessed by commodity price reporting agency Argus, fell to $66.32 a tonne in the week to Feb. 28, down from $67.03 the prior week and also some 5% from the peak so far this year of $69.59 in mid-January.

Low-rank Indonesian coal with an energy content of 4,200 kilocalories per kilogram has also weakened, dropping to $34.82 a tonne in the week to Feb. 28, down 5% from its peak in mid-February, according to Argus.

This type of coal is popular with Chinese traders and utilities as it is low in ash and blends well with higher-ash domestic supplies.

If there is a positive for Asia’s coal exporters it’s that a 5% decline in prices actually looks rather good compared to the pummelling felt by other commodities, with Brent crude futures down about 23% since early January and London copper weaker by around 9%. (Editing by Christian Schmollinger)

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