July 6, 2017 / 5:52 AM / a month ago

Column - Weather plays havoc with China coal imports, prices: Russell

FILE PHOTO: A Chinese miner works at a coal mine in the suburb of Tangshan, China December 9, 2005.Jason Lee/File Photo

LAUNCESTON, Australia (Reuters) - Thermal coal prices in Asia have had a strong run recently, amid Chinese demand and supply disruptions in major exporters, but these factors point to a temporary boost rather than any structural change.

The price of spot cargoes from Australia's Newcastle port, the world's largest thermal coal export harbour, have jumped 23 percent since mid-May to close on Wednesday at $87.90 a tonne.

While still negative for the year, the recent rally has taken Newcastle coal close to the $93.50 a tonne it fetched at the end of last year.

The strong gains appear justified by supply and demand fundamentals, with vessel-tracking data showing a tightening of seaborne supplies in June to China, the world's top importer of the polluting fuel.

China's seaborne imports totalled 17.77 million tonnes in June, according to vessel-tracking and port data compiled by Thomson Reuters Supply Chain and Commodity Forecasts.

This figure is filtered to show only vessels that have discharged cargoes and the final numbers may vary slightly to account for ships that arrived before month-end and are still in the process of unloading.

The ship data also doesn't perfectly align with official customs figures given differences as to when cargoes are booked as having unloaded, but the vessel-tracking has proven to be an accurate indicator of trends in China's coal imports.

The June figure for seaborne imports is 3.35 million tonnes lower than the 21.12 million reported in May, and is the lowest monthly total since February, according to the data.

Shipments from Australia were largely steady in June at 7.84 million tonnes, compared to May's 7.81 million.

However, imports from number two supplier Indonesia were sharply lower, dropping to 6.31 million tonnes in June, from May's 9.47 million and April's 9.83 million.

While May and April were strong months for Indonesian shipments to China, the decline in June made it the weakest month since February, a month in which imports were affected by the Lunar New Year holidays.

WEATHER'S STARRING ROLE

Exports from Indonesia, China's largest supplier of seaborne coal, were curbed by heavy rainfall in June, which caused flooding and disruptions to mining operations.

A short strike at mines owned by Glencore in Australia's Hunter Valley coal region contributed to sentiment driving prices higher, even if the labour action didn't have much material effect on coal exports.

On the demand side in China, a drop in output of as much as two-thirds from hydropower plants because of excessive rains pushing rivers to flood levels has boosted demand for coal-fired power as a replacement.

Chinese thermal coal prices have spiked higher in line with those in Australia, with the Zhengzhou Commodity Exchange futures gaining almost 16 percent from the recent low in early May to Wednesday's close of 588.2 yuan ($86.50) a tonne.

Spot coal at China's Qinhuangdao port has also moved higher, reaching 590 yuan a tonne on Wednesday, up 4.4 percent from the recent low of 565 yuan on June 14.

It's worth noting that Chinese domestic prices are below the Newcastle spot price, meaning that imports are now more costly, especially once the cost of freight and taxes is added in.

This suggests that the spike in Newcastle prices is unlikely to persist, especially if export volumes from Indonesia recover from weather disruptions.

At the same time, China is likely to be able to ramp up hydropower once the threat of flood damage recedes, which will likely lower demand for thermal power generation.

The rally in coal prices is likely more of a seasonal and temporary factor than a signal that higher prices will be sustained.

Editing by Richard Pullin

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