In its Minerals & Energy Commodities Update issued this week, NAB noted thermal coal spot prices eased across most of March but recovered most of the losses by mid-April, with prices edging back above $55/t (Newcastle active contract on the ICE) – around 24% lower year-on-year.

“Japanese Financial Year contracts were settled between Glencore and Tohoku Electric Power at $US67.80 for the year commencing April 1 – a fall of 17% from the previous contract, but still at a considerable premium to spot prices,” NAB said.

“Japan’s demand for coal could be impacted by the phased restart of the country’s nuclear generation capacity. Approval has been granted for the Sendai 1 reactor to reopen – likely in July – while a further 18 reactors are awaiting approval.”

Five older plants, dating from the 1970s, have been slated for decommissioning, reducing the overall capacity of the sector.

“We expect the comparatively weak demand conditions to continue,” NAB said.

“Reflecting the limited upside to spot prices across 2015, we have revised our forecast for 2016 Japanese financial year contract prices lower to $62/t.”

While NAB said coal remained the key fuel in China’s energy mix, coal consumption fell last year – reflected in both lower imports and lower domestic production.

Total coal production (both thermal and metallurgical coal) fell by 2.5% in 2014 and a further 3.5% year-on-year in Q1 2015. The China National Coal Association forecast production to fall by 5% this year.

“Efforts to address China’s air pollution could continue to impact demand for coal,” NAB said.

“For example, Beijing will close the last of four major coal fired power plants in 2016, with the capacity replaced with natural gas plants. Official targets call for a 13 million tonne cut to coal consumption in the five years to 2017.

“Changes in the composition of China’s growth – driven more by services than heavy industry – will lower the energy intensity of the country, further impacting medium-term coal demand.”