TELF AG Update on Atlantic and Pacific Thermal Coal Markets – August 15, 2023

Volatility Strikes Again – Atlantic and Pacific Thermal Coal Markets React to Geopolitical Uncertainties

In the ever-shifting landscape of global energy markets, recent developments have once again thrust the thermal coal industry into a whirlwind of volatility. The Atlantic and Pacific, thermal coal markets have been grappling with a series of factors, ranging from geopolitical uncertainties to supply-demand dynamics, causing prices to surge and react volatilely.

The Atlantic thermal coal market witnessed a noteworthy uptick, with prices rising by $9 per ton to $117.85 per ton. This surge was driven mainly by a sharp increment in gas prices. The market’s response was intensified by the market’s anticipation of potential strikes at three major LNG export facilities. Notably, Chevron and Woodside’s facilities located in Western Australia, contributing roughly 10% of the global LNG supply, faced the possibility of labor strikes. While the physical impact would primarily affect Asian nations such as Japan, China, Taiwan, and South Korea, the repercussions could extend to other parts of the world. The tightening of global supplies has sparked potential competition for fuel in both European and Asian markets.

The pricing dynamics were also visible in the TTF (Title Transfer Facility) market, where prices surged by an astounding 28% on a single Wednesday, only to stabilize somewhat over the remaining days. Such dramatic fluctuations underscore the extreme volatility inherent in the market. This scenario isn’t novel; similar episodes occurred in the past, notably in June. It’s worth acknowledging that these price shifts are likely not the last ones, given the intricate interplay of factors influencing the industry.

Negotiations with unions have been underway, reflecting the unease that currently envelopes the market. On the coal front, stocks in the ARA (Amsterdam-Rotterdam-Antwerp) region have been slowly declining, despite relatively low consumption from European countries. Fresh demand signals emerged from the Middle East and North Africa (MENA) region, adding a new dimension to the supply-demand balance. Additionally, stocks at the Richards Bay Coal Terminal (RBCT) in South Africa have recovered to 2 million tons, an improvement from the record-low levels observed merely two weeks ago.

One notable trend has been narrowing the spread between RB1 and API2 prices. This shift has been driven by the accelerated increase in RB1 prices compared to API2 prices, indicating a rebalancing of price dynamics between these two benchmarks.

Shifting our focus to the Pacific thermal coal market, the gCNewc index recorded a $6.7 per ton increase, reaching $145.77 per ton. This upward movement was fueled by heightened buying interest for October loading parcels of high calorific value (CV) coals. However, the Australian high-ash material segment remained within a range of around $86 per ton.

Indonesian thermal coal prices, on the other hand, exhibited relative stability at the low 50s range for IC4 (4200 GAR), despite reported challenges in trans-shipment activities due to standard drafts in critical waterways. Meanwhile, China’s coal import figures for July revealed a robust month, with imports amounting to 39.3 million tons. This brings the year-on-year increment for January to July to an impressive 89%—however, concerns regarding potential deceleration loom in light of healthy stocks and recent weak economic data. The possibility of a robust economic stimulus is now being closely monitored.

In the Indian market, post-monsoon supply interests spanned various consuming sectors. Yet, the upward momentum in South African coal prices resulted in scattered inquiries, as some buyers awaited a potential downward correction amid relatively stable domestic availability.

In conclusion, the Atlantic and Pacific thermal coal markets have again showcased their susceptibility to rapid and often unpredictable changes. Geopolitical uncertainties, supply-demand dynamics, labor negotiations, and economic indicators all drive the volatility that has come to define this industry. As these markets navigate a complex web of factors, market participants must remain vigilant and adaptive to weather the storm and capitalize on opportunities amidst turbulence.