No thermal coal price recovery to 2019 highs

Prices weakened further due to a severe drop in global thermal coal energy demand amid covid-19 lockdowns in Q220 extending into Q320, Fitch reports. Newcastle thermal coal (6,000kcal/kg, FOB) prices are currently hovering around $48/tonne, a level last seen only in 2016.

So far, prices have averaged $58/tonne in the year to date, and Fitch sees more weakening in the coming months from current levels to reach its final average forecast for the year.

Moving into 2021, Fitch says there should be some strengthening in prices as the global economy and thus demand starts to gear up, and puts its forecast at $58/tonne for the year.

However, the analyst notes that there will be no recovery to price levels seen in 2017-2019 as a rebound in demand back to the extent seen during those years is unlikely.

No rebound to 2019 highs
On the demand side, substantial downside pressure to Newcastle coal prices in 2020-2021 compared with 2019 will come from Japan and South Korea, the two largest importers after China (together making up 50% of all Australian thermal coal exports in 2019), Fitch says, due to a severe drop in economic activity as a result of the covid-19 pandemic and a slow recovery in 2020-2021.

Fitch holds its view that the outlook for Newcastle coal prices will remain bleak in 2020-2021 and beyond due to ample supplies and waning demand from main importing nations.

The global coal deficit will ease in 2020, Fitch says, to 519mnt compared with 592mnt in 2019.