Australia picks up slack from halted North Korea imports and Indonesia supply crunch. Feeding China's appetite for coal is helping to drive up Australian prices of the commodity for both electricity generation and steelmaking.
TOKYO -- Prices of coal for both electricity generation and steelmaking are climbing amid heated Chinese demand backed by brisk steel production and elevated power use.
International benchmark Australian coal for power generation has reached a roughly seven-month high of around $90 per ton -- up 25% over a recent low in mid-May. Unusually heavy rains in Indonesia have hampered output, and delays in loading ships have caused supply to stagnate. This is driving up demand for Australian coal.
Australian coking coal prices have also climbed by a fifth over the last month to $175 per ton. Steelmakers in such countries as China and India are procuring more in response to rising prices of the metal. Chinese crude steel production reached an all-time high in the first half, according to the World Steel Association. Supply is also crunched as operations are on hold at a number of Australian mining facilities producing coking coal.
Thirsty For Energy
Warming temperatures in the Northern Hemisphere have driven up energy demand. The need is particularly fierce in China. An energy company official says that heavy rains have caused rivers to swell and that the company has stopped using water for hydropower generation so as to avoid flooding downstream. Demand for fossil-fuel energy, in turn, has grown.
"Prospects of price increases down the road have driven speculation, further spurring increases," said one official at a resources trader.
China cut off coal imports from North Korea in mid-February as a form of sanction against the rogue state, whose nuclear and missile development continues. Last year, the North Korean variety accounted for 22 million tons, or 12%, of the roughly 180 million tons of coal the country imported, according to the country's National Bureau of Statistics.
China's June coal output grew 11% on the year to 308 million tons, breaching the 300-million-ton range for the first time in seven months. Yet its coal fever shows no sign of cooling.
The hunger "will be a cause for increasing imports from other producing regions" and is "probably supporting spot prices for Australian coal," said an official at the Japan Oil, Gas and Metals National Corp.
No End In Sight
China is seen as having begun shifting toward procuring coal from sources including Australia and Russia. "An indirect effect on Australian coal prices is likely," a trading house official said. The country also seems to be turning toward Australia as well as Mongolia for coking coal, a move that would similarly prop up Australian prices of that commodity.
Prices look to remain high in the second half. "Given strong demand and economic health in China, prices will likely stay in the neighborhood of $100 per ton until autumn," said Tatsufumi Okoshi, senior economist at Nomura Securities. Rising import prices could play a part in pushing up electricity rates as well.
29 July 2017