Coal Price towards USD220/ton?
• Coal price rose by +170.81% YTD (+272 .01 % YoY ) to USD218/ton on Thursday (30 /09 /2021 ) . The strengthening of coal price was driven by several sentiments, one of which was the increase in gas prices in Europe which making the cost of steam power plant more expensive by EUR75 .32 /MWh or up +131 .71 % YTD on 21 /09 . When compared to the cost of using coal, it is only EUR44 .18 /MWh . This will certainly increase coal demand in the future, followed by the projected coal price at the end of 2021 , making coal prices have the potential to continue to increase . On the other hand, the China has announced a new policy to stop building new coal -fired power plants abroad which affected on the rising of coal demand .
• Goldman Sachs Group, Inc . projects that newcastle thermal coal prices up to 4 Q21 E will reach USD190/ton, while coking coal is estimated to reach USD175/ton . We see that this is quite relevant with the increase in global coal exports . From technical analysis, we estimate that the price of coal until the end of FY21 E has the potential to reach the level up to USD226/ton .
Coal production has not yet recovered
• Meanwhile, in terms of coal demand, there was an improvement globally, with global imports recorded at 55 .49 million tons on July -21 or up + 1 .36 % MoM (vs 54 .75 million tons in June -21 ) . YTD of coal imports has reached 354 .69 million tons up to 7 M21 or 61 % of the import realization in FY20 , reached 578 .26 million tons . We see a slight improvement on the demand side in FY21 E compared to the early of the pandemic where there was an increase in coal demand amid rising prices .
• In terms of coal production, Indonesia recorded 565 .80 million tons in FY20 , while up to 8 M21 coal production had reached 429 .87 million tons or 81 .88 % of the Government's target of 525 million tons in FY21 E . We see the achievement of FY21 E target is still quite open, despite the heavy rainy season in 4 Q21 E potentially cause a shortage in production.
Facing the Energy Crisis
• President Xi Jinping stated that he would stop the construction of coal -fired power plants in many developing countries . This is due to the support of the Chinese government to develop green energy and low carbon, where China became the largest coal consumer in FY19 . Currently, China contributes 40 % towards global thermal coal import in 1 H21 . The energy crisis in China, driven by a series of government policies to reduce carbon emissions, resulted in blackouts so that industrial production in China began to be hampered. The Chinese government is currently trying to accelerate the supply of coal to overcome the energy crisis . Hence, we estimate that demand in the near future will increase.
• UK Government has approved of providing coal to keep power plants up to date . This is due to a spike in the natural gas price since May -21 . We see this will also contribute to the currently high demand which will further boost the price.
• India is also at risk of a power outage caused by heavy rains, causing coal mines to be submerged and roads leading to mining sites slowing India's coal production . On July -21 , coal reserves in India fell significantly to 9 . 2 million ton or -38 % MoM (vs 14 .91 million ton on June -21 ) . This value is the lowest level of coal reserves in the last three years of production . This will certainly be the driving force behind the increase in coal demand amid rising electricity use in India from 10 % to 18 % on August -21 .
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