13 December 2018
- Short-term supply conditions are outright bullish. Supply conditions are tighter across both the Atlantic and Pacific basins. This will go on to support both API2 and NWC prices. The net re-stocking trend in the EU has persisted which should absorb additional supply from the market. We also see a drop in inventory levels across several key coal consuming countries which is a price positive development.
- Our assessment of overall demand remains overwhelmingly bullish. We picked up marginally higher fossil fuel utilization which would imply higher coal consumption in the short-term. Chinese coal demand has strengthened further which also should support prices. This is likely seasonal as heating demand returns. There has also been an improvement in demand from other North Asian countries (Japan - S.Korea - Taiwan), which along with a widening import arb completes the bullish picture for overall coal demand.
- Overall macroeconomic conditions are bearish. Weak lending and manufacturing conditions remain in place which will likely dampen near term coal demand. The latest manufacturing data has been disappointing which suggests headwinds for prices. With the strength of the dollar being picked up by our models, we see further weakening in the purchasing power by key importers which would add further downward pressure to prices. Lower energy intensity remains in place which confirms the weaker macro conditions discussed earlier.