Asia's Thermal Coal Imports Face Price Restraints Amidst Sufficient Supply

In December, the seaborne thermal coal imports to Asia reached an unprecedented high, driven by China's heightened demand during the peak winter season. Despite this robust demand, the surge in imports did not translate into higher prices. Indonesia and Australia, the two major exporters of thermal coal primarily used for electricity generation, experienced substantial growth in their export volumes, contributing to an oversupply in the market.

China played a pivotal role in this surge, importing 32.08 million tons of seaborne thermal coal in December, setting yet another record and surpassing the 29.57 million tons imported in November. China's increased appetite for imported thermal coal in 2023 was driven by a rise in coal-fired power generation.

This surge was a response to lower hydropower output and escalating electricity demand as the country's economy rebounded from the impact of Beijing's stringent zero-COVID policy. Notably, China's domestic coal production also experienced an uptick, reaching a daily record high of 13.8 million tons in November, surpassing the previous peak of 13.5 million tons from March the same year.

Indonesia's thermal coal exports surged to 48.05 million tons in December, the highest since March the previous year, with China accounting for a significant share at 20.99 million tons. Despite this robust demand for Indonesian thermal coal, its impact on prices was tempered by reduced purchases from India, the second-largest coal importer. India imported 15.53 million tons of seaborne thermal coal in December, down from 17.65 million in November and the lowest since September.

Japan and South Korea primarily purchase coal priced against Australian 6,000 kcal/kg fuel. The price for this grade dropped to $131.99 per ton on January 5, following three consecutive weeks of decline from a recent peak of $157.01 per ton in mid-December. This peak in the current northern winter is significantly lower than the highs around $415 per ton witnessed in the winter of 2022-23, amid concerns about an energy crisis in Europe following the loss of Russian coal and pipeline natural gas due to Moscow's invasion of Ukraine.

The overall outlook for the seaborne thermal coal market in Asia indicates that the increased supply has offset the strong demand from China. The trajectory for the first quarter of 2024 hinges on whether China continues to prioritize imports or if domestic output claims a larger share in power generation. Additionally, the adoption of non-fossil fuel alternatives such as hydro, wind, and solar will influence market dynamics during this period. The delicate balance between supply, demand, and alternative energy sources will shape the trajectory of the seaborne thermal coal market in the coming months.