Argus Media Limited

10/01/2021 | News release | Distributed by Public on 10/01/2021 11:21

NE Asian coal market strengthens

South Korean coal prices surged this week, as the electricity supply crunch in China boosted regional markets.

Argus assessed NAR 5,800 kcal/kg coal $17.83/t higher on the week at $165.97/t fob Newcastle and $18.97/t higher at 194.28/t cfr South Korea.

In the tender market, state-owned Kepco utility Korea Western Power reportedly awarded an Australian producer two November-loading Panamax cargoes of NAR 5,475 kcal/kg coal at around $138/t fob Newcastle and another Australian producer one November-loading Panamax cargo of NAR 5,300 kcal/kg at around $139/t fob Newcastle - all on a NAR 6,080 kcal/kg price basis.

Fellow Kepco utility Korea South East Power was heard to have awarded two Panamax cargoes of NAR 5,600 kcal/kg Australian coal for January-February loading at around $175/t fob Newcastle on a NAR 6,080 kcal/kg price basis.

More capacity restrictions across the state-owned Kepco coal-fired fleet have been added to the October schedule, according the Korea Power Exchange (KPX), although there are also signs that tight electricity supply margins this winter could force the government to loosen caps on coal-fired plants.

A total of 12.1GW of Kepco coal-fired capacity is scheduled to be unavailable in October, up from 11GW based on last week's schedule, with the potential for further additions in future weekly updates.

Of the total, 6.7GW were listed as voluntary restrictions planned by Kepco utilities as part of efforts to cut output in line with government targets. But one previously scheduled voluntary restriction was revised to exclude working days next week, which one market participant said was in response to an unexpectedly tight reserve margin.

Available Kepco coal-fired capacity this month is scheduled at 6.4GW lower on the year at 21.6GW. This should limit any year-on-year increase in national coal-fired generation, but a significant decline may also be unlikely as load factors across available plants were unusually low at 61pc in October 2020 and a rebound this year would offset most or all of the drop in available capacity.

South Korean power demand is forecast to recover by 4.2pc on the year this month, according to KPX's latest monthly outlook. With nuclear availability scheduled to climb by 1.6GW to 18.6GW, Argus estimates that around 20GW of coal-fired generation would be needed to meet demand this month, assuming generation from natural gas and other sources is flat on the year.

This would be slightly higher than in October 2020, but down from the 25.3GW 2017-19 average for the time of year.

Japanese demand outlook weak

Surging fob prices in Asia-Pacific boosted implied landed coal prices for Japan this week, despite recent weak generation from fossil fuels and a soft outlook.

Data from the 10 major grid operators published this week show an 8.4TWh year-on-year decline in combined generation from fossil fuels in August - the biggest annual decline in thermal generation since July 2019.

The drop was driven, in part, by weaker overall power demand - which fell by 5TWh - amid restrictions to control the pandemic, and compounded by stronger hydro, wind and nuclear generation.

Generation data for September will be published at the end of October, but national power demand fell by 3.3TWh on the year last month, which is likely to have triggered a similar decline of 7-8TWh in generation from fossil fuels last month, especially since nuclear generation will again have increased because of fewer outages.

And generation from fossil fuels looks set to continue to decline on the year in the fourth quarter, even if overall power demand recovers to the three-year seasonal average, as large increases in nuclear generation and incremental growth in renewables output will likely limit Japan's recourse to thermal generation.

Nonetheless, the seaborne market remains tight because of strong Chinese demand for non-Australian coals, as a result of a domestic shortfall and a suspension of trade with Australia. Japanese thermal coal imports from Australia rose by 2.1mn t on the year to 7.5mn t in August and were 4.2mn t higher on the year for January-August. But imports from Indonesia are down by 4.7mn t and receipts from Russia have slipped by 200,000t, with overall imports broadly flat on the year.

Seven-day avg. Korean peak power demandGW
Weekly Kepco coal-fired availabilityGW
Japanese power demandTWh
Japanese thermal power generationTWh