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Global Thermal Coal Prices to Fall Following Coronavirus Outburst in China



By Debjoy Sengupta


February 2, 2020 - International thermal coal prices may fall following outburst of the coronavirus in China indicates analysis firm Wood Mackenzie.

“We expect February would take the biggest hit by the coronavirus as the Chinese government implements various controls against the accelerated spread of the virus, including public holiday extensions and travel bans. On 25 January, Linfen city of Shanxi province announced a delay to production restart and only maintenance work is allowed. Weakening economic and industrial activities would hurt both thermal coal demand and Chinese domestic production,” the firm said in a recent report.

According to the firm, thermal coal imports into China are also likely to slow for a time. Already there are reports of Indonesia coal producers being asked to delay loadings. As the largest supplier of coal to China, Indonesia has the most to lose if the situation worsens and electricity demand weakens.

The impact on prices, though, is likely to be muted. Prices have already fallen so significantly through 2019 that many producers across the globe are in a negative margin situation. Market sentiment could certainly drive the price lower, but this will be temporary until China began importing again, it said.

The overall near-term impact on thermal coal is largely determined by how effective the control measures taken are through March, and when the recovery of macro-economic activities and power demand will occur.

Trade and prices could both remain volatile depending on where the impacts are concentrated. Should the outbreak continue to accelerate into March and more heavily impact coastal areas, restocking interest from Chinese traders may be muted for longer weighting on the seaborne market.

However, if the impacts are limited to the interior, domestic supply could be disrupted allowing for more imports. The upside to prices though is likely not that significant given the abundant availability of Indonesia production.