Worrying signs are emerging for coal exporters to the world's biggest markets in Asia, as top buyers China and India move to favour domestic supplies over seaborne imports.
The prices of higher-grade Australian thermal coal, lower-rank Indonesian thermal coal, and Australian coking coal used in steel-making have come under pressure in recent days, amid signs demand may be easing.
Vessel tracking and port data compiled by Refinitiv suggests a slowing in cargo offloadings in top importer China, number two buyer India and third-ranked Japan in the first half of April, both from March and the year-earlier month.
While April is historically a slower month for seaborne coal imports, falling in the shoulder season between peak winter and summer power demand, this year the picture has been clouded by the economic fallout caused by the new coronavirus.
China, where the coronavirus originated, was the first country to lock down much of its economy and is currently the first to try and restart activity.
But Chinese domestic coal prices have fallen in recent weeks, with the SteelHome benchmark price at Qinhuangdao slipping 13.6 per cent from its peak so far in 2020 of 573 yuan ($80.99) a tonne on Feb. 26 to 473 yuan on Wednesday.
Importantly, this is below the informal price range the government sets for domestic thermal coal of 500 yuan to 580 yuan a tonne.
This means that the authorities may once again encourage traders and power plants to limit thermal coal imports, in order to boost domestic demand and prices.
This is likely to be more of an issue for May and June seaborne cargoes, but there are already some early signs of lower Chinese imports.
In the first 15 days of April 8.7 million tonnes of coal was discharged at Chinese ports, according to Refinitiv data, a rate that if maintained would see full-month imports of around 17.4 million tonnes.
While the final number may well be higher as more ships are tracked, it would appear that China's seaborne imports in April may fall short of March's total of 23.4 million tonnes, and the 21.1 million from April last year.
INDIA GOES LOCAL
In India it's a similar story, with imports for the first 15 days of April assessed at 5.8 million tonnes. That points to a final month total of 11.6 million tonnes, although the figure will likely be revised higher as more cargoes, particularly from major supplier Indonesia, are captured by vessel-tracking.
However, it looks like India's April total will struggle to match the 20.6 million tonnes from the same month in 2019, or the 16.9 million from March this year.
The outlook beyond April also looks challenging, with the Economic Times newspaper reporting on April 12 that Coal Minister Pralhad Joshi has written to chief ministers of all states asking them not to import coal and instead take domestic supplies.
The lockdown of India's economy will also result in a significant drop in demand for both thermal coal for power generation and coking coal for steel making.
Japan's coal imports for the first half of April were 5.7 million tonnes, putting it on track for a total of at least 11.4 million, which would be down from 14.9 million in March and 13.2 million in April 2019.
Japan's economy hasn't been as locked down as that of India's, but there may be some coal-to-gas switching happening, given the collapse in spot prices for liquefied natural gas to the lowest on record.
Seaborne coal prices have started responding to the weakening outlook for Asian demand, with futures on Australia's Newcastle thermal coal ending at $62.25 a tonne on Wednesday, down 13.8 per cent from their peak so far this year of $72.25 on Jan. 13.
Singapore-traded futures on lower-rank Indonesian thermal coal ended at $29.87 a tonne on Wednesday, a drop of 18.2 per cent from their peak so far this year of $36.51 a tonne on Feb. 10.
Australian coking coal contracts traded in Singapore finished at $136 a tonne on Wednesday, down 16 per cent from the March 3 high for 2020 of $161.99.
While all grades of coal have suffered losses already this year, the likelihood that demand for imports will slip in the main markets of China, India and possibly Japan in coming months will keep prices biased lower.
