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Coal Market

Global Price Trend

Thermal Coal

Screenshot_18.pngGlobal producers and consumers of thermal coal tended to be more optimistic about Q1 2020, as compared to the majority of commodity markets. Market players and experts kept their fingers on the pulse of the spread of COVID-19 in China and of measures taken by the Chinese government to curb its spread to other provinces, analyzed the likely impact on the domestic production and logistic chains, the extent of coal demand drop and potential interest of Chinese customers in seaborne coal amid such environment. By the end of March, European prices for thermal coal were around $50 per ton, while in Asia they were approaching $70 per ton.

Market growth based on optimism in Q1 resulted in prices hitting a low of 2016 in April, both in the Atlantic and Pacific regions, as soon as it became obvious that Covid-19 pandemic spread beyond China by leaps and bounds, and restrictions imposed by governments created an artificial negative «demand shock» for electricity, fuel and energy commodities including coal. On the other hand, there was no decrease in supply «enough to reach market equilibrium».

The market experts suggest focusing on China to assess potential effects of Covid-19 pandemic on the other countries.

Brief review: Covid-19 spread in China began to accelerate at the end of January 2020. The Chinese government took tough measures 



including lockdown of cities to tackle pandemic spread. Global commodity markets were thrown into disarray under the influence of irrational factors as well as actual economic problems, related to disruptions to existing economic ties and logistic chains, inability to carry out normal foreign trade activities, logistic challenges as the whole regions of China were under quarantine orders.

As a result, coal production in China after a drop in January and February by 6.3% YoY to 489 Mt, actually recovered in March to 340 Mt, accounting for a 9.6% increase compared to March 2019. Thus, in Q1, 2020, coal production in the country shrunk just by 0.5% YoY to 830 Mt (-4 Mt). The total power generation in Q1 fell by 6.8% YoY, and TPP generation decreased on a year-on-year basis by 8.2%. According to CCERA estimates, coal consumption in China in Q1 is likely to decline to 870 Mt, which is 60 Mt lower compared to the previous year. Demand for coal only in the energy sector reduced by nearly 50 Mt. While coal import reached 95.78 Mt (+28.4% YoY), such growth seemed to have been «impressive».

In April, Chinese domestic thermal coal prices began to plummet, pushing down the international prices. In turn, on April 20, major Chinese coal producers (China Energy Investment, China Coal, Datong and Yitai) announced the minimum price for domestic coal (5500 kcal/kg, at least 485 RMB/t in the ports of the Northern China for shipment to be made during the rest of the month), to put a stop to aggressive and competitive price sagging since the beginning of April. Chinese Coal Transportation and Distribution Association (CCTD) also urged the Chinese coal producers to curtail production in order to support domestic prices and to stabilize the market. In addition, CCTD required to strictly observe coal import restrictions after it was found out that coal import in April soared again up to 30.95 Mt (+22% YoY, +11% month/month). Import in January-April was 126.73 Mt, rising by 26.8 Mt or 26.9% on a year-on-year basis. Despite strict import quotes, some Chinese utility companies continue to reserve cheaper imported coal as import prices dipped to historical lows, outpacing domestic prices slide in China. A number of regional customs authorities reported that they are going to maintain import volume in 2020 equal to the values of 2017 (270.9 Mt).

In Q1, India was practically not affected by the pandemic, but since March 24 the country was locked down, which is likely to result in coal consumption shrinkage for the second consecutive year (seaborne coal import decreased in April by about 15 Mt, according to Refinitiv). 

Thus, there appeared some red flags for coal exporters to the Asian markets as the main buyers – China and India – can prefer domestic deliveries to imported ones.

As for the rest of the world, the conditions radically changed in March when China gradually recovered, but COVID-19 pandemic was spreading beyond China across the other countries amid oil prices collapse. Oil market crisis drove down all energy markets, and gas prices plunged to 11-year lows. In Q1 2020, gas contracts at TTF lost 42%; and European prices for carbon EUA fell by over 25%.








2020 Outlook

Coronavirus will trigger a marked decline in short-term demand for coal across the globe. As for fundamental imbalances, price risks and an abject failure of the global fuel and energy sector, Q2 2020 may demonstrate the greatest weakness since demand for electricity between peak seasons (winter-summer) has weakened in this very quarter. Q3, provided that restrictions are gradually lifted in most countries and stimulus measures are taken by governments, may prove to be transitional on course to economic recovery (multiple global economic rehabilitation scenarios are currently under consideration, e.g. talks on V-shaped or U-shaped economic recovery, which will set time limits needed for economies to recover their losses). 

Higher summer temperatures compared with previous years are likely to drive the growth in demand for electricity. On top of that, putting off maintenance periods at TPPs, NPPs and other power industry facilities to later dates in Europe due to Covid-19 restrictions may endanger security of energy supplies in the region in the second half of 2020. In Asia, due to far more affordable coal generation, the regional economies will see the green shoots of quicker recovery. In addition, the monsoon seasons in some countries may put bounds on coal mining (India, Australia, and Indonesia).

At any rate, weakness of coal prices will be confined to sea freight availability. Covid-19 is expected to cause a drop in coal mining within Cerrejon and Prodeco (Columbia) projects, Graspan (RSA), CONSOL, and within assets of Alliance, Contura Energy companies (USA). Three of the four mines in Poland have put mining on hold (including Murcki-Staszic and Jankowice). In Ukraine, DTEK Energy Holding shut down all mining operations and auxiliary plants of DTEK Pavlogradugol Group between April, 20 and May, 16 due to energy crisis faced by the country. Russian coal also sees a decline in mining and export amid a slackening of economic activity caused by Covid-19, adverse pricing environment and domestic bottlenecks in logistics.

Wood Mackenzie expects global import demand for bituminous thermal coal (“sea coal”) to slow down to 56 Mt in 2020. Noble predicts the world import demand for bituminous thermal coal to slump by 7% YoY or 69.7 Mt to 927 Mt.

Of rather long-term economic scars there can be, these are worth noting: first, reduction in capital expenditure of coal mining and gas companies will result in a slide in production output in a few years; second, climate change combat and OECD nations ceasing coal use (including Green Deal) can take more of a back seat for a while and postpone the deadline for implementing the measures under these programmes; thirdly, when it comes to increasingly cheap traditional fuels, renewable energy projects somewhat lose their commercial potential.


IEA forecast. International Energy Agency (IEA), having analyzed events of 100 days (January 11, 2020 – April 25, 2020), has produced a report on how a crisis amid COVID-19 impacted on global energy demand. Here are conclusions about the prospects of energy markets and coal generation: 

- Covid-19 pandemic stands for the hardest hit for the global energy sector since WWII.

- a steep drop in the global economic activity and flexibility in Q2 2020 resulted in a fall in global energy demand by 3.8% YoY. Should lockdowns last for months and recovery be at a slow pace, energy demand will be curtailed by 6% in 2020, thus, shattering the last five-year growth, which will occur for the first time in 70 years. Should efforts to curb the spread of the virus and to reboot economies happen to succeed, a decline in demand can be narrowed to 4%. Nevertheless, disruptions to the global supply chains and the second wave of the pandemic in the second half of the year can hinder recovering.

- the crisis impact on energy sector heavily relies on duration and toughness of crackdowns: every month of lockdown cuts the global energy demand by 1.5% on an annual basis.

- all fuels except renewable sources will show unprecedented reductions in demand over decades.

- global demand for coal will tumble by 8% in 2020, which will be the largest drop since WWII. Coal consumption in Q1 2020 fell by a total of 8% and coal generation by 10%. Coal demand recovery in China will slow down the global slump in demand.

- the Covid-19 outbreak in China triggered a decline in coal consumption by 8% in Q1 2020 as the economy contracted by 6.8% and coal power generation fell by 9%. In 2020, coal demand across the country will shrink by 5%.

- India in Q1 had little to no impact of coronavirus, however, on March 24, the government mandated the lockdown of the whole country likely leading to a drop in coal use the second year in a row.

- the rest of the world will also see a plunging demand for coal: in the US— by 25%, in EU — by 20%, in Korea and Japan - between 5 and 10% as well as in SEA.

- demand for natural gas will also decrease by 5%, generation at NPP will reduce by 3%.

- renewable generation is all what will rise in 2020 given the higher hydropower load, whereas a growth in this sector will be less than in the previous years.


Coking Coal

Screenshot_30.pngIn Q1 2020, coking coal market appeared to be incredibly steady.  Hard coking coal price delivered FOB DBCT Australia (benchmark) came out at $134/mt, and premium coal price – $155/mt. The growth compared with Q4 2019 added up to 8.6% and 11.2% correspondingly. However, the prices were pushed down by over 25% relative to the start of the last year.

On the one hand, in early 2020, China saw a recovery of pent-up demand after restrictions were placed on coal import in late 2019. In addition, trade flourished ahead of the Lunar New Year holidays.Much to the market actors’ surprise, the Covid-19 outbreak in Wuhan gave a boost to demand and quoted prices for metallurgical raw materials. For one, in Q1, China kept on ramping up steel output[1] amid the shrinking domestic supply (measures adopted to curb the spread of coronavirus impeded a restart of coking coal mining) and railway and maritime disruptions. Coal supplies from Mongolia were brought to a halt for a while. Some lockdown restrictions were imposed on supplies from Australia. Furthermore, the market actors were anticipating some stimulus to support the Chinese economy. As a result, in January-February 2020, China imported 20.80 Mt of coking coal, which appeared to be 26.7% higher than in the same period in 2019 (although March recorded a drop in import by 8.1% YoY to 5.64 Mt). Meanwhile, a slowdown in domestic steel demand eventuated in a threefold increase in steel warehouse stocks by the end of Q1 (YoY).


Screenshot_31.pngIn addition, March prices came under pressure since the Covid-19 outbreak outside China has forced many countries to impose stay-at-the-home and lockdown rules and to shut down the entire plants. Steel production fall outside China (as steel makers all over the world had low load operation as a response to a demand shock in construction, machine-building and car industries, some production facilities were shut down due to measures taken to battle the spread of the virus) took a toll on coking coal demand. 

Consequently, in Q2 we can observe a downward trend in prices for these metallurgical raw materials. By May prices had plummeted to the lowest point of summer 2016: the price for hard coking coal FOB DBCT Australia (benchmark) is below $90/dmt, for premium coal – below $110/dmt.

Thus, it seems fair to say that optimistic sentiments of the Chinese steel makers allowed suspending the adverse effect of Covid-19 on coking coal market in Q2 or rather economic impacts of the restrictions placed by different nations to combat the pandemic. According to consensus-forecast, Q2 may prove to be the weakest in this year, and Q3 to be transitional. By the second half of 2020, the global steel production will have restarted its growth on the back of the ease of restrictions and a gradual recovery of car and construction industries. 



Russian Coal Market

In Q1 2020, coal industry in Russia found itself in troubles.  

Here are the main results:

- Since the beginning of this year coal mining in Russia has been shrinking: in January it tumbled to 11% YoY (to 33.1 Mt); in February – to 8% YoY (to 32.2 Mt), in March – to 10.1% YoY (to 33.6 Mt). Thus, coal mining between January and March 2020 contracted by 9% compared with the same period in 2019 (by almost 10 Mt) and totted up 98.8 Mt. Domestic supplies and exports dropped by 7.6% to 46.3 Mt and by 16% to 45.5 Mt correspondingly (a calculated rate as the Federal Customs Service has not been revealing and including export sales to Ukraine in the totals).     

- Russian Railways, in turn, reported that coal represented 48.2% of the whole commodities exported. Having said that, there is a 0.9% rise (YoY) in coal shipments to sea ports (to 38.2 Mt). Shipments to the southern ports were 27.2% higher than in 3 months of 2019 (4.1 Mt). Coal shipments to the northwestern ports declined by 6% to 12.1 Mt. Over 22.1 Mt of coal (which is 1.1% higher YoY) were shipped to the Far East ports.  

- An increasing number of companies report experiencing financial difficulties. 

In this respect, challenges faced by coal industry are given much attention at different levels. 



Here are a few key milestones of Q1 2020: 

- Amid an adverse economic climate, since March 1, 2020, Russian Railways has repeatedly been giving the biggest discounts on export shipments of thermal coal to Russia’s northwestern ports and China through Kazakhstan: a 12.8% discount is allowed on shipments for a freight hauling distance of over 3000 km to Russia’s northwestern ports (“Oktyabrskaya”, “Severnaya” and “Kaliningradskaya” railways); a 25% discount is granted on shipments to the Kazakh-Russian border transfer stations when further passing border crossings with China–Dostyk-Alashankou and Altynkol-Khorgos (for a freight hauling distance of up to 3000 km) and a 12.8% discount for a freight hauling distance of over 3000 km. A decreasing coefficient of 0.872 to tariff is imposed on export shipments of thermal coal to port stations of the Kazakh-Caucasian railway for a freight hauling distance of over 3000 km. This special tariff is applicable without any warranty liabilities for shipment volumes. The discount is applied to all shipments effected between March 17, 2020 and December 31, 2020. On top of that, the discount may be extended to 2021.

- Russian Railways also granted a 12.8% discount on export shipments of thermal coal to the Azov-Black Sea basin ports.

- First Deputy Prime Minister A. Belousov proposed a new legislation for upgrading the capabilities of the Eastern Polygon in the same way as it was done when the Kerch Strait Bridge was under construction and there were preparations for the Olympic Games in Sochi.

- Since March 20, in the Kuzbass region has been operating a control center headed by the Russian Minister of Transport E.Ditrikh for the purposes of coal export. The Russian Prime Minister M. Mishustin had the final say on this. It has been agreed that in 2020 Kuzbass consignors would ship and Russian Railways would haul at least 53 Mt of bituminous coal to be exported on the Eastern route, and up to 3.55 Mt – within Russia. Coal companies will have shipped 64 Mt of coal on the northwestern route until the late 2020. However, up to 50.35 Mt of this volume will be forwarded to the northwestern export ports and 21.1 Mt more on the southern route, including 9.41 Mt to the ports and 13.6 Mt to Russia.  

Due to an adverse climate, reigning in the coal industry both inside and outside the country, a decline in production indicators and a marked deterioration of financial performance of coal miners are expected in 2020, including a soaring number of small companies going bankrupt and transactions with coal assets. Above all, it will affect those focusing on thermal coal mining. There is likely to be a steep drop in investment activity, putting current and planned expansion projects on ice. The main actors will focus on measures to cut mining cost and maintain profitability of supplies. In 2020, opportunities to ramp up export sales of coal will be confined both to internal factors: an insufficient throughput capacity of the Eastern polygon on the Asian route, the permitting procedure for exporting Russian coal to Ukraine, indexation of Russian Railways' tariffs; and to external factors: a global crisis caused by Covid-19, Poland's political refusal to export Russian coal, a special duty of 65% introduced by the Ukrainian government for importing  electricity and all coal types from Russia, except anthracite and coking coals. A dramatic slump in the national currency rate and collapse of oil quoted prices will play right into the hands of the Russian exporters, which can potentially cut down on transport expenses and output of the European principal competitors – Columbia and S. Africa.

Domestic and export coal prices


[1] Metallurgical or coking coal is applied in coke production, which is a primary fuel and reagent in blast-furnace operations for steel production. Thus, this is a steel production-related supply.