June 7, 2018 / 6:17 AM / 6 months ago

Australian thermal coal prices surge as Asia demand heats up

* Hot weather in China, Japan and Korea pushes up demand

* Thermal coal market outperforms LNG this year, close to Brent

* But analysts say coal rally could soon wane

By Henning Gloystein

SINGAPORE, June 7 (Reuters) - Australian thermal coal prices have hit their highest level since late 2016 as the market heats up on strong demand across North Asia and China in particular.

Spot prices for delivery from Australia’s Newcastle terminal last closed at $114 per tonne, just down from Monday’s $114.50, the highest since November 2016. Coal last reached such levels back in early 2012.

Newcastle is now up by almost 130 percent from the record lows seen in early 2016.

With a near 11 percent increase since the end of 2017, Newcastle coal has far outperformed its main fuel competitor, liquefied natural gas LNG-AS.

Coal is even close to the 13.5 percent rally in Brent crude oil prices, which has come on the back of voluntary production restraint by producer cartel OPEC, supply disruptions in Venezuela and looming new U.S. sanctions against major exporter Iran.

Traders said the price rally was largely down to a surge in imports from China, as an early summer heatwave drives up electricity demand for air conditioning and industrial cooling.

“Since April, the seaborne thermal coal market has seen quite the move ... with stronger Chinese demand being a key driver,” said Dutch bank ING in a note to clients, adding that this was largely down to “warmer than usual weather.”

Weather data in Thomson Reuters Eikon showed that average temperatures in China’s capital Beijing are set to surge to 29 degrees Celsius in the coming days, which is 7 degrees above the seasonal norm.

Hot weather is also supporting demand in other key demand regions in North Asia, including Japan and South Korea, traders said.

However, commodities brokerage Marex Spectron said in a note to clients this week that some of the market tightness was likely short-term and could soon wane, as the peak of the heat wave passes.

ING also said China was “set to take a step back from the seaborne market” in order to support domestic miners which could put pressure on Newcastle coal prices.

Reporting by Henning Gloystein; editing by Richard Pullin

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