Coal Price Decline: Impact of Heatwave on Asia Pacific Demand

Sectoral Insight

Market

Monday, 10/07/2023 15:55 WIB

Jakarta, CNBC Indonesia – The coal price for the August contract on the ICE Newcastle market was in the position of US$141.80/ton on Friday (7/7/2023) or fell 5.28% in the past week. Within a month the black stone corrected 0.04% and since the beginning of the year (ytd) has fallen to minus 63.60%.

The collapse in coal prices was triggered by the weakening prices of other energy commodities, sluggish demand, and the possibility of high interest rates in the United States (US).

Weak manufacturing activity and China’s economy are the main cause. China is the largest consumer of commodities in the world, including coal.

The Caixin/S&P Global manufacturing purchasing managers’ index showed China’s manufacturing activity slumping to 50.5 in June 2023 from 50.9 in May this year.

However, from other Asia Pacific countries, coal demand is predicted to increase due to the heat wave that has hit several Asia Pacific countries since April 2023.

Since April 2023, record-breaking heatwaves have hit many Asian countries, including India, Bangladesh, China, Thailand and Vietnam. Several regional temperature records have been set.

A May study by World Weather Attribution found that heatwaves were caused at least 30 times more likely by climate change in India and Bangladesh.

Summer in India lasts from April to June. However, the average temperature has been getting higher in recent decades. In fact, the whole of South Asia is considered highly vulnerable to the effects of the climate crisis.

Last April in India, at least 13 people died, while 12 people had to be hospitalized due to exposure to extreme temperatures. A research by a group of meteorologists even noted that heat waves caused more than 17,000 deaths over the last 50 years.

The extreme heat wave has increased the demand for coal for power plants in India.

The heatwave has also forced Bangladesh to close primary schools and trigger frequent power outages. The situation is exacerbating conditions for residents who are unable to turn on fans to cool off as weather officials warn help is not imminent.

Bangladesh is facing power outages as fuel shortages trigger the shutdown of several power generation units, including its largest coal-fired power plant.

The government of Bangladesh has decided to stop operating the coal-fired power plant from Tuesday (6/6/2023) due to limited fuel over the next few days, further exacerbating the situation.

This is what triggered Bangladesh to increase coal imports since the heat wave lurked.

Coal demand is also predicted to increase from Vietnam. The crashing heat wave has made Vietnam quite worried about the surge in demand for electricity supply.

Vietnam’s weather authority announced the heatwave will last into June. Temperatures range from 26 degrees Celsius to 38 degrees Celsius.

Vietnam is currently experiencing an electricity crisis. Extreme heat and drought are weighing on the energy supply of the country’s northern region at the moment. So that the increase in Vietnam’s coal imports will have the effect of the electricity crisis.

Cambodia has also been affected by water shortages due to high water demand in Thailand. Cambodia’s Ministry of Water Resources and Meteorology predicts that the hot weather will continue until mid-May, with less rainfall than in 2022. It also says that the weather pattern is affected by El Nino, and the resulting heat will last until August. In May, a temperature of 41.6 °C (106.9 °F) was recorded in Kratié and the Ponhea Kraek district, setting a new national May record.

This has the potential to increase sales in the second quarter of 2023 results for several issuers in the coal sector that carry out export sales to the Asia Pacific region which was hit by a heat wave due to increased demand for coal.

Disclaimer: This article is a journalistic product in the form of views from CNBC Indonesia Research. This analysis does not aim to persuade readers to buy, hold, or sell related investment products or sectors. The decision is entirely up to the reader, so we are not responsible for any losses or profits that arise from that decision.

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