In its Minerals & Energy Outlook issued this week, the bank noted that spot prices for thermal coal have been relatively stable since late April – with the active Newcastle contract on the Intercontinental Exchange trading in the mid-$US50s to $60/tonne range.
“While prices have generally settled around these levels, they remain weaker than a year ago,” NAB said.
While China is still the world’s largest coal producer, production has fallen this year as domestic producers struggle for profitability in a weak demand environment. Total production was around 2.1 billion tonnes over the first seven months, a decline of 5.1% year-on-year.
For the full year, the China National Coal Association forecasts a 5% fall. The Asian giant’s imports of thermal coal have also fallen significantly – over the first seven months, imports totalled 93Mt, down 37% yoy.
NAB believe thermal coal demand in Japan is likely to decline in the short term, as the phased restart of the country’s nuclear generation capacity gathers pace.
Generation at Kyushu Electric’s Sendai No 1 reactor restarted last month, with the company anticipating an additional reactor to resume in October.
In total, Japanese utilities have applied to restart 25 reactors, with regulators approving five applications so far. Utilities turned to coal and LNG to meet the shortfall in electricity generation due to the nuclear shutdown.
NAB says there is also considerable uncertainty around Indian seaborne demand in coming years – with the government’s stated goal to end coal imports in the next two to three years.
“While this energy plan calls for increased domestic coal use, and a greater share for renewables longer term, this may prove unobtainable – supporting import volumes for some time,” the bank said.
“Weak trends in key import markets have prompted production cuts that have largely stabilised markets. Indonesian production fell by over 19% yoy in the first five months of the year, while export growth from Australia slowed to 3.8% yoy in the first half of 2015 (from 6.7% in 2014).
“We expect prices to remain largely range bound – with demand limiting the upside, and cost pressures the downside. The 2016 Japanese financial year contract price is forecast at $62/t [from $67.80 this year].”
