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Global coal, LNG prices tumble as supply surges and demand weakens

Thermal coal and natural gas prices are tumbling, with both falling their lowest since 2017, as the outlook for the most used power generation fuels darkens due to tepid demand.

Feeding an emerging glut is a surge in exports.

Refinitiv trade data showed shipments of liquefied natural gas (LNG) from key exporters Australia, Qatar, Malaysia and the United States rose to a record 19.5 million tonnes in January, up from 14.5 million tonnes two years ago.

Meanwhile, exports of thermal coal from prominent suppliers Australia, Colombia, Indonesia and South Africa climbed to 54.5 million tonnes in January, the highest in at least two years.

The supply surge is occurring just as heating demand is starting to taper off with the end of the Northern Hemisphere winter approaching and that is weighing on prices.

Asian spot LNG prices have fallen by more than 40 percent since June to around $6.50 per million British thermal units (mmBtu). That is the lowest since September 2017, and a three-year low for the winter season.

Spot coal cargo prices for exports from Australia’s Newcastle terminal have fallen by a quarter since the middle of 2018, to below $90 per tonne for the first time since 2017.

2020 European coal futures, known as API2, have also lost almost a quarter of their value since their $100 peak in 2018, dropping below $80 per tonne for the first time in a year.

Coal and gas markets are moving in the opposite direction of oil, which usually influences the two generation fuels, with crude prices rising on Friday to their highest this year.

“With coal on course to see a sharp reduction in underlying demand from the power sector, further weakness cannot be ruled out,” consultancy Energy Aspects said in a note, adding that milder spring weather and ample storage could also further pull down gas prices.

Beyond the end of winter, commodities brokerage Marex Spectron said “a significant slowdown in manufacturing activity” also weighed in coal and gas prices.

SWELLING INVENTORIES

The high supplies and tepid demand have resulted in swelling inventories.

Vishal Thiruvedula, coal analyst at Refinitiv, said coal inventories at import terminals in China, the world’s biggest consumer of the fuel, were at 15.39 million tonnes in early February, 5 million tonnes higher than this time last year.

The situation is similar in natural gas, where storage facilities hold ample supply.

“Mild weather and ample storage have led to a weaker Asian market with overflow cargoes pouring into Europe,” James Taverner, energy analyst at IHS Markit, said earlier this month.

More fundamentally, demand for thermal fuels for power generation has declined because of improving energy efficiency and the rise of renewable power generation, which is eating into the market share of coal and gas.

“Our main concern remains the outright bearish energy intensity of key LNG consuming economies,” said Marex Spectron, adding that “the pickup in renewable power generation … would imply weaker coal consumption.”

The International Renewable Energy Agency (IRENA) said in its 2018 report that “renewable power accounted for 70 percent of net additions to global power generating capacity.”

Source: Reuters

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