Thermal Coal June 2017
Stability Expected Following Contract Settlement

The May spot price for premium Australian thermal coal averaged US$74.0/t FOB Newcastle, down 12.6% from April as markets corrected lower after rising in April on supply concerns following Cyclone Debbie. With the disruption now all but resolved, prices trended lower over the course of the month, ending May at US$72/t. We expect spot prices to stabilise over the coming months on a balanced outlook.

Glencore and Tohoku settled the 2017–2018 Japanese Financial Year thermal coal contract at US$85/t. While the price is lower than that of the October 2016 settlement, the contract covers a far greater volume, and is a significant increase on the US$61.8/t price from April last year. We expect producers will be very happy with this price, with over 95% of global export production profitable at this price.

Demand was strong in most Asian countries in the March Quarter of 2017. Japanese thermal coal iimports were up 4.6% year on year to 29.2Mt, South Korean imports were up 8.9% to 27.9Mt, and Thailand’s imports were up 4.4% to 7.43Mt. Among countries that have reported January–April data, China’s coal imports were up 33% to 33.9Mt and Vietnam’s imports were steady at 4.63Mt in January–April. For Taiwan, January–February bituminous coal imports were up 15.3% to 10.6Mt. However, South Korean imports for the rest of 2017 are uncertain, with the new government attempting to temporarily close eight older coal-fired power stations.

Overall, AME expects to see spot prices stabilise over the rest of 2017 as supply and demand remain tight. There is upside pressure to this forecast with Indonesian exports potentially falling as domestic demand picks up. Additionally, domestic supply growth constraints in China and India may provide further upside potential if global demand remains as strong as it has so far in 2017.