Coal Prices Soar Amid High Demand from China and Gas Worker Strikes

Week in Review

Market

Sunday, 17/09/2023 15:45 IWST

Photo: Illustration of a coal mine. (CNBC Indonesia/Tri Susilo)

Jakarta, CNBC Indonesia – Coal prices soared last week amid high demand from China and other sentiments including a strike by gas workers in Australia.

According to Refinitiv data, the price of ICE Newcastle coal for the October contract closed at US$166.15 per ton as of Friday (15/9/2023) or an increase of 4.17% in the week.

The price of coal was at US$168 per ton in trading on Wednesday (13/9/). This price is the highest since May 8 2023 or the last four months.

Throughout this month, coal prices have strengthened 7.55%. The temporary increase this month is quite good, especially when compared to August which was able to shoot up 12.49% or the highest throughout the year.

Coal price movements cannot be separated from China’s sentiment as the largest producer, consumer and importer of coal in the world.

Bamboo Curtain Country’s coal imports recorded a record high in August at 44.33 million tons. This number rose 51% compared to a year ago (year on year/yoy) and grew 12.9% compared to July (month on month/mom).

In the eight months since the beginning of this year, coal imports increased significantly by 82% to 306 million tons, according to official data quoted fromReuters.China’s high level of imports is due to China’s coal production being unable to meet the demand for coal power plants, and Chinese coal was even more expensive than imported prices.

This high use of dirty electricity generation occurs in line with weakening hydroelectric power plants, due to heat waves which reduce the volume of water.

China’s increasing demand also accelerated for commodities other than coal, such as oil and iron ore. Oil imports have increased as China has opened up from tightening the spread of Covid-19, so travel has increased and demand for gasoline and aircraft fuel has soared. This is also the reason why Brent oil prices are above US$90 per barrel.

In contrast to China, India is observed to have quite high coal stocks, 39% higher than last year, said Coal Minister Pralhad Joshi on Wednesday, quoted fromCoal Mint.

However, the high stock is due to India’s high electricity demand which has reached a record 239.9 GigaWatt (GW), higher than the Central Electricity Authority (CEA) estimate.

It is estimated that high stocks will still be insufficient to meet September’s electricity shortage, so the Ministry of Electricity has directed electricity generation to be mixed with imported coal at 4% until March 2024.

The ministry in a letter said that despite an increase in domestic coal supplies during the first quarter of the 2024 fiscal year, this amount still does not meet needs.

Turning to European energy, Germany’s wind power draw is expected to fall by 7.5 gigawatts (GW) to 3.3 GW on Thursday while French supply is expected to fall by 600 megawatts (MW) to 740 MW, LSEG data showed.

LNG Workers Strike Action

The market sees coal prices remaining at high levels amid concerns about natural gas supplies. Russia’s war in Ukraine has no end in sight, and worker strikes continue at liquefied natural gas facilities in Australia.

“Prices will continue to rise ahead of winter,” said Yoshiaki Takahashi, senior researcher at the Institute of Energy Economics, Japan, quoted from NikkeiFriday (15/9).

Launching from ReutersOn Saturday (16/9), the Australian Offshore Alliance union said on Saturday workers had begun a 24-hour strike at Chevron’s liquefied natural gas (LNG) plant in western Australia, as part of an escalation of ‘action industrial’ which will probably extend the strike until mid-October.

The full strike came after workers on Thursday stepped up limited action for six days.

Until the end of September, members of the Offshore Alliance, a coalition of two unions, can now go on strike for up to 24 hours a day and refuse tasks such as loading LNG tankers.

The company’s Australian Gorgon and Wheatstone LNG facilities account for more than 5% of global supply.

“Three Chevron facilities on the West Coast are experiencing chaos as Offshore Alliance members lock down all three Chevron facilities for the next 24 hours,” the union said in a Facebook post.

A prolonged strike could disrupt exports and raise the price of LNG, which is used to generate electricity.

CNBC INDONESIA RESEARCH

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Disclaimer: This article is a journalistic product in the form of CNBC Indonesia Research’s views. This analysis does not aim to encourage 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 arising from this decision.

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