Mine Delays in China Are Buttressing Beleaguered Coal Bulls

(Bloomberg) --

Disruptions to coal mining in China because of the coronavirus are giving the coal market a rare cause for bullishness.

For the past five months, Asian seaborne prices have been hovering near a three-year low on rising supply and soggy demand. But now, as the deadly epidemic hinders Chinese mines from restarting after the Lunar New Year holiday, the world’s biggest consumer is looking to import more and that’s giving prices a boost, according to traders and miners surveyed by Bloomberg.

The global commodity market has been thrown into disarray by the virus as Beijing keeps swathes of the country under lockdown, disrupting raw material supply chains and subduing demand. The fallout has hammered global prices of everything from oil to copper, but coal joins a handful of commodities such as fertilizer that are getting a boost.

The rise in Asian seaborne prices is mainly driven by delays in Chinese mines returning after the holiday, said New Hope Corp. Managing Director Shane Stephan. Lower shipping rates also help to make “Australian coal more competitive on a landed cost basis into China.”

The most-active Newcastle coal futures have climbed about 9% this week to $72.20 a ton Thursday. Chinese prices on the Zhengzhou Commodity Exchange rose 3.6%, capping the biggest weekly gain in almost a year.

The price arbitrage for seaborne and Chinese coal has widened, implying a window is open for China to boost imports, according to Marex Spectron analyst Hui Heng Tan.

Output Cuts

Mine suspensions will probably cut China’s coal production by 145 million tons, said Dennis Ip, an analyst at Daiwa Capital Markets Hong Kong Ltd. While that’s about 4% of the country’s total output last year, it’s equivalent to almost half of its imports and could have a significant impact on the seaborne market.

Still, the strength and sustainability of higher imports are in doubt. The extended shutdowns have disrupted land, sea and air transport. So not only will exporters find it a challenge to get vessels into China, they may have difficulties unloading cargoes and moving them to end-users.

A Chinese buyer of liquefied natural gas and a copper importer have already declared force majeure, a contractual term meaning they’re unable to take delivery of cargoes, as the impact of the virus on logistics and manpower constrains their ability to receive shipments.

Ample Stockpiles

Lofty coal stockpiles at some power plants may also curb additional purchases, according to traders. Inventories at six major utilities are sufficient for 44 days of use as of Friday compared with 33 days before the holiday, data from China Coal Transport & Distribution Association show.

At the same time, China is seeking to expedite the resumption in domestic production. The National Energy Administration said in a notice that authorities should improve transportation networks and connectivity to production hubs, while the raising of domestic coal prices beyond certain levels is prohibited.

For now, there is higher demand for small shipments from Indonesia, which takes a shorter time of about two weeks to deliver into China, according to one of the traders. The Indonesian Coal Mining Association said there’s an opportunity to boost exports, though China’s demand will depend on port conditions.

To contact Bloomberg News staff for this story: Jing Yang in Shanghai at jyang251@bloomberg.net;James Thornhill in Sydney at jthornhill3@bloomberg.net;Feifei Shen in Beijing at fshen11@bloomberg.net

To contact the editors responsible for this story: Ramsey Al-Rikabi at ralrikabi@bloomberg.net, Jasmine Ng, Aaron Clark

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With assistance from Bloomberg