China’s Manufacturing Slowdown Causes Coal Prices to Drop: CNBC Indonesia Market Analysis

Jakarta, CNBC Indonesia – Coal prices fell again after China reported a slowdown in its manufacturing activity.

During trading Thursday (1/6/2023), the coal price for the two-month or July contract on the ICE Newcastle market closed at US$ 130.85 per ton. The price fell 3.25%

Yesterday’s closing price was the lowest since July 7 2021 or in almost the last two years. If calculated since the beginning of the year, coal prices have fallen by 66.4%.

The drop in coal prices in early June has prolonged the black sands’ suffering this year.

If you look at the monthly movements, coal prices have never risen this year. and fell 37.33% in January 2023.

Coal prices continue to weaken even though demand from China is still relatively high. China is the biggest consumer of coal in the world so the increase in China should push up the price.
Unfortunately, China cannot alone raise coal prices because demand from many regions continues to weaken, especially Europe.
The shadow of China’s weakening economy is also becoming more evident and could further depress coal prices in the future.

Projection Refinitiv shows that China’s coal imports were still high last month. Imports are expected to reach 34.33 million tons in May 2023, up 2.1% compared to April.

However, demand from China could be sluggish in the future if China’s economic activity does not improve.

China’s manufacturing activity for the period this May shrank again faster than expected. This was triggered by weaker demand which has added pressure on policy makers to shore up the patchy economic recovery.

The National Bureau of Statistics (NBS) on Wednesday (31/6/2023) reported that the manufacturing purchasing managers’ index (PMI) fell to a five-month low of 48.8, down from 49.2 in April. This PMI figure also broke the expected increase to 49.4.

This figure completely exceeded analyst expectations, including production and investment, raising concerns about China’s growth momentum.

The PMI sub-indices covering production, new orders and raw materials inventories contracted in May, signaling weaker demand not only for exports but also capital investment.

While remaining on a growth trajectory, China’s non-manufacturing PMI fell to 54.5, from 56.4 in April.

Apart from China, India is expected to be able to support coal prices. India’s total imports in May are estimated to reach 16.61 tonnes, up 15.6% compared to April which recorded 14.37 tonnes.

However, imports are expected to decline in the future due to high domestic coal production. India’s coal production reached 76.26 million tonnes in May 2023, up 7.1% over the same period last year.

In contrast, Japan and South Korea, which have been the mainstays for supporting high-calorie coal prices, cannot be relied upon.

Imports from both countries showed a decline. Japan’s imports in May fell to 6.95 million tonnes, from 8.55 million tonnes in April.
South Korea’s imports also slumped from 6.7 million tonnes in April to 6.03 million tonnes in May this year.

The sharp decline came from Europe in line with the disappearance of the energy crisis from the region. Gas prices that continue to weaken also make Europe prefer to switch to gas.

European natural gas prices EU Dutch TTF (EUR) continued to decline to touch 23.10 euros per mega-watt hour (MWh) yesterday. The price fell 14% a day and collapsed 38.4% a month. This price is the lowest since April 2021.

“We estimate that gas prices will remain a determinant of coal prices in the short term. With sufficient supply, gas prices are unlikely to be able to support coal prices. Moreover, energy demand is falling,” said Clyde Russell, an analyst at Reuters.

CNBC INDONESIA RESEARCH

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