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Supply and demand in the seaborne thermal coal market has returned to balance, driving up export spot prices over the last few weeks, S&P Global Platts Analytics said in its weekly report Dec. 7.

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“We have seen over the past two weeks a surge in spot physical and coal futures prices across the board,” Platts Analytics said in its International Coal Markets Scorecard, adding that the speed and delta of the rise has been “somewhat surprising from a fundamental standpoint.”

A combination of low export prices and demand destruction caused by the pandemic have caused a supply response, rebalancing demand and supply.

Platts Analytics estimates about 152 million mt of export supply has been removed from the seaborne market.

“We believe this rebalancing of the market means the end to record low export prices,” the report said. “The seaborne thermal coal market appears to be working efficiently, meaning that as the market returns to balance, prices should correct upwards towards a level closer to the cost of the marginal supplier.”

Additionally, Platts Analytics said in a report Dec. 4, oversupply in the seaborne thermal coal market is about 12 million mt, 1% of volumes in the 900 million mt market.

“Platts Analytics believes that this is within the thermal coal market’s balanced zone and conclude that after two years of oversupply in the market, the seaborne thermal coal market has returned to balance,” the report said.

Although, headwinds remain, particularly with the Chinese import ban on Australian coal and La Nina weather affecting production in Indonesia.

On the demand side, headwinds include expectations of a warmer-than-average Northeast Asian winter, limiting heating fuel demand.

“Given these headwinds, we caution the current price rise does appear to be too fast too quickly,” Platts Analytics said in the Dec. 7 report. “While the higher prices are supported by fundamentals, we see downside in high-CV coal prices, particularly FOB Newcastle and CIF ARA prices.”

2021 demand growth

The US, the report also noted, remains significantly priced out of the market as a swing supplier. According to PA, US export prices would have to increase to a sustained level above $75/mt FOB to see export volumes increase.

PA expect the US to export 22.7 million mt in 2020, down 34% from 2019, and drop a further 2% to 22.1 million mt in 2021, they said in the International Thermal Coal Forecast published Dec. 1.

Looking ahead in the global market, Platts Analytics said in its monthly international forecast that they expect the seaborne thermal coal market to be slightly undersupplied in 2021, which will help support FOB prices over the next two years.

Coal producers are expected to continue showing restraint in volumes, and “after persistently low export prices in 2020, prices are increasing due to tightening supply and improving demand,” Platts Analytics said in its Dec. 4 report.

Import demand is forecast to increase about 45 million mt year on year in 2021 with Indian demand making up most of the increase.