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China & India Many Sink Coal Prices

Coal prices fell for 6 days in a row, until they were below the psychological level of US$144 per ton. This correction caused coal prices to be at their lowest point in 2 months or since August 4 2023.

Referring to Refinitiv , the November contract price of ICE Newcastle coal closed at US$ 144 per ton or down 2.91% in trading Wednesday (4/10/2023). This week, coal prices have even fallen 7.9%.

This correction means that the black sand has never been in the green zone throughout October. The weakening that occurred continued the correction in September of 1.36%.

The weakening was caused by high production in India and China, the European winter which has not yet been observed to experience a significant drop in temperature, and the possibility of high interest rates in the United States.

Coal price movements cannot be separated from sentiment from China as the world’s largest producer and consumer. The weakening occurred in line with an increase in production in China’s central coal province, Shanxi.

According to Xinhua , Shanxi Province is the backbone of the Bamboo Curtain Country’s production with a contribution of 81.8% of the total. The high production is due to Shanxi being recorded as being in the position of coalbed methane with high reserves.

China’s coal-rich Shanxi province saw raw coal production approach 900 million tonnes in the first eight months of this year amid efforts to increase output to guarantee supplies, local authorities said. High production can reduce China’s import levels, so that prices do not experience a significant increase.

Turning to India, India’s overall coal production increased 15.8% to 67.2 million tons in September on an annual basis (yoy). During January-September 2023, India’s coal production increased significantly to 428.2 million tonnes compared to 382.1 million tonnes a year earlier,

One of the largest coal producers in the world, Coal India Ltd, recorded a 12.6% increase in production to 51.4 million tons in September compared to the previous year, as recorded by CoalMint

For additional information, Coal India Ltd contributes more than 80% of domestic coal production. Increasing coal production in India could result in a decrease in demand for imports from that country, even though India is the second largest coal consumer in the world after China.

With decreasing demand, prices will also experience pressure. Meanwhile, market expectations regarding the tight policy of the US Central Bank, The Federal Reserve (The Fed), are increasing.

The FedWatch Tool monitoring tool shows that around 28.8% of market players expect an increase in the benchmark interest rate of 25 bps in November. This figure is much higher than the percentage of 14% recorded in the previous week.

The tight policy adopted by the Fed is expected to result in a slowdown in the US and global economies, so that demand for commodities, including coal, will decline.

Source : CNBC