Australian and Indonesian thermal coal tread contrasting price paths: Russell

Australian and Indonesian thermal coal tread contrasting price paths: Russell

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

By Clyde Russell

LAUNCESTON, Australia, Aug 25 (Reuters) - The spot price of benchmark Australian thermal coal is continuing to hold near record highs above $400 a tonne, but the price for Asia's other main type of the coal used to generate electricity isn't performing nearly as well.

Indonesia is the world's largest exporter of thermal coal and the discount between its benchmark price and that for Australian Newcastle coal has widened to almost 82%.

Singapore-traded contracts for Indonesian thermal coal with an energy value of 4,200 kilocalories per kg (kcal/kg) S42CFc1 ended at $75.47 a tonne on Wednesday.

Contracts for Newcastle coal with a calorific value of 6,000 kcal/kg NCFMc1 ended at $412.60 a tonne on Wednesday on the ICE exchange.

This is below the all-time high of $440 a tonne reached on March 2 in the wake of Russia's Feb. 24 invasion of Ukraine, however, the price is 170% higher than it was at this time in 2021 and some 770% above the level from the same day in 2020.

Prior to the invasion of Ukraine, Indonesian coal was at $76.96 a tonne, a discount of 67.6% to the $237.70 for Newcastle futures.

Even adjusting for the difference in energy value still shows a massive gap between the two grades of coal, with Indonesian coal coming in at $17.97 per 1,000 kcal/kg, while Newcastle is at $68.77.

What the pricing shows is that Australian thermal coal has benefited massively from the attack on Ukraine, and Europe's subsequent decision to end coal purchases from Russia.

But it's also clear that Indonesian coal hasn't seen much change its in valuation at all, despite a scramble for coal that stretches from major Asian buyers such as India, Japan and China, all the way to energy-starved Europe.

The main reason for this is that Indonesia is highly reliant on just two customers, namely China and India.

Other major Asian importers, such as Japan and South Korea, buy relatively small volumes from Indonesia and most of what they do import is of higher quality, similar to Australian, South African and Russian thermal coal.

Lower energy coal also means that Indonesia is unlikely to win new customers in Europe, who will prefer buying higher grade fuel from South Africa, the United States and even the odd cargo from Australia, despite the vast distance a ship would have to travel.

RISING EXPORTS

Indonesia exported 42.13 million tonnes of coal in July, according to data compiled by commodity analysts Kpler. This was the highest monthly amount in Kpler data going back to January 2017.

Of the total, China was the destination for 14.55 million tonnes and India took 10.27 million, meaning these two countries accounted for 59% of Indonesia's total exports.

Japan, South Korea, Malaysia, Taiwan and the Philippines all had volumes in the 2 million to 3 million tonne range in July, making them important customers for Indonesia.

However, those countries are unlikely to ramp up imports given their limited coal-generation capacity, meaning that China and India will determine the overall demand for Indonesian coal.

While China and India, the world's two biggest coal importers, are keen to take cargoes from Indonesia, they have the ability to boost or lower their demand, thus giving them some measure of pricing power.

In the absence of strong competition from other buyers for Indonesian coal, the price has remained largely stable, and has decoupled from other grades being used to replace cargoes from Russia, such as those from Newcastle and South Africa's Richards Bay.

It's worth noting that Australia has also only a handful of major customers for its thermal coal, namely Japan, South Korea and Taiwan.

But these buyers are seeking to end imports from Russia, and there are limited other potential suppliers, especially since Europe is competing strongly for cargoes from South Africa and from the Americas.

Effectively, Australian thermal coal is exposed to the global market, and lower-grade Indonesian coal isn't.



GRAPHIC-Prices for Indonesian, Australian thermal coal: Link



Editing by Christian Schmollinger