While iron ore rebounded last week from last week’s multi-month lows, Australian coking coal took a real hit at Singapore’s commodity hub SGX.
The first month for fines of 62% jumped to US$108. 50. on Friday, recovering from last Friday’s close of US$99. 51. per tonne, a minimum of 8 months. Friday’s close was the highest in 10 days.
The increase was tempered by news that China’s iron ore inventories at ports rose sharply for the twelfth week in a row: the figure now stands at more than 143 million tonnes, equivalent to about six weeks of imports.
The increase in inventories came despite a slight improvement in capacity utilization at most of China’s blast furnaces last week.
But the biggest challenge for Australia (and especially for coking coal exports such as BHP, Glencore, Whitehaven and New Hope, as well as Yancoal) has been the way in which the key value of May SGX futures for Australia’s premium coking coal fell to $38 per tonne or year. Very unpleasant 13% in the last week.
While the current month’s (March) price of $276 per tonne is down more than 4% over the previous week, the May futures price has seen a more significant drop.
In fact, the May contract was not traded on Friday or Thursday’s close, at $246 a tonne, the lowest level in more than a year.
This weakness is related to demand for coal from Chinese steel mills, but demand from major companies in Japan, Taiwan and South Korea is also weak.
China is expected to increase coal imports in 2024, due to oversupply considerations in the market. The China Coal Mining Association said last week that it expects overall production to rise this year to 36 million tonnes.
When more than 4. 6 billion tonnes are produced a year, as China does, this is a rounding error.
China mined 705. 27 million tonnes of coal in the first two months of the year, up from 734. 23 million a year earlier, and imports rose sharply in the first two months of the year. Shanxi, China’s top coal-producing province, is rolling out a new protection. production measures and policies to stabilize production and avoid overproduction, and we forecast a production decline of up to 40 million tonnes this year.
China’s coal output is expected to exceed 36 million tonnes, or 0. 8%, to around 4. 7 billion tonnes in 2024, a Chinese coal industry organisation said on Wednesday, a slower expansion than last year’s 2. 9% expansion.
The projection follows record production in 2023, when the world’s largest coal mined 4. 66 billion tonnes of polluting fossil fuel.
The China Coal Transmission and Distribution Association (CCTD) expects domestic coal costs to fall at a rapid pace, partly due to weak real estate markets, said Feng Huamin, a senior analyst at CCTD’s research department.
Feng cited government orders to suspend infrastructure projects in some heavily indebted provinces as one of the main reasons for price pressures.
The slump in investment and asset sales in China has slowed amid the government’s efforts to halt the sector’s prolonged slowdown, but analysts are hesitant to end the suffering of fragile asset markets.
Generation from non-fossil resources will increase pressure on thermal generation this year, with power generation expected to grow in line with its forecast for 5% economic expansion, Feng said.
“A large proportion of institutions forecast that hydropower generation will see a marked improvement this year,” Feng said, adding that an increase in solar and wind installations could help meet about 70% of the expected expansion in electricity demand.
Drought-like situations in primary generation regions led China to enjoy an alarming drop in hydropower generation in Asia last year, as its output plummeted at the fastest rate in decades.
Some miners suspended production for longer after the Lunar New Year holiday, other people familiar with the matter said. Feng said some mines are already at risk of reaching their stockpile limits due to maximum stockpile levels.
Meanwhile, Shanxi’s main coal production hub is expected to cut its output by 40 million tonnes this year, partly due to a series of injuries in the recent past, Feng said.
Shanxi has observed that the number of deaths related to mining injuries has increased by more than 50% in 2023, prompting the mining protection regulator to issue a statement last month calling on mines to curb overproduction to avoid injuries.
However, energy consumption across industries in the first two months of 2024 grew at an oddly high rate of 9. 7%, Feng said, a trend that could push inventories down if it continues.
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