Thermal Coal Market

May 16, 2018

The Research Team reviews the Thermal Coal market


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16 May 2018

  • Short-term supply conditions are bullish. Overall, we see tighter supply conditions across both Pacific and Atlantic basins, which is a price supportive development. We also picked up lower EU Days of Consumption, which along with tighter supply conditions, should also continue to support prices. However, inventory levels across key coal consuming countries continues to increase which should slightly negate these otherwise price supportive developments.
  • We estimate short term demand as bullish. Fossil fuel utilization rates on the continent are expected to pick up on the back of weaker renewable output. We continue to pick up increase in Chinese coal demand per our Chinese Implied Days of Consumption (DoC) Oscillator. However, this looks to slow down from week #21. Our trade weighted Import Arbitrage Index also shows a greater incentive to procure seaborne material. Lastly, demand from other key North Asian countries i.e. JKT (Japan - South Korea - Taiwan) has increased which should further support prices.
  • Macroeconomic conditions are bearish. Credit conditions continue to tighten which continues to put a drag on prices. We also picked up weaker energy intensity in key coal consuming countries, which along with lower manufacturing activities should imply weaker demand for coal. Our Currency Impact Index remains short-term supportive of prices although this is gradually weakening as the recent USD strength continues to be picked up by our model.