5 September 2018
- Short-term supply conditions are marginally bullish. Supply conditions are mixed with temporary supply tightness continued to be seen in the Pacific Basin. However, supply increases continue to be seen in the Atlantic instead. Inventory levels across key coal consuming nations continue to increase. This is expected to add further downward pressure on prices. With the increasing EU Days of Consumption which is a positive price development.
- We estimate short term demand as bullish. We continue to forecast higher fossil fuel power generation utilization rates which would imply high coal demand in EU. We estimate marginally higher Chinese coal demand as shown by our lower implied Days of Consumption (DoC). Our import arb indicator also reversed its recent downward trend which should see greater incentive to import by key coal consuming countries. However, demand from other key North Asian countries, i.e. Japan-South Korea-Taiwan continue to decrease which is the only negative driver in the demand section.
- Macroeconomic conditions are overwhelmingly bearish. We continue to see weaker lending conditions in the short term. With tightening credit, this will likely curb coal demand and therefore negative for prices. With the latest global PMI data, overall manufacturing conditions look to soften which is likely to add further downward pressures on prices. On the currency front, weakness in the importers’ currencies continue to indicate lower purchasing power which is expected to continue to provide a drag on prices.