Newcastle thermal coal futures increased notably amid rosy demand outlook on the back of major oil producing countries' decision to cut production.
The May contract on the ICE closed at $209.5/t on April 5, a 2.37% rise from the previous week, which reversed a 3.47% fall on April 4. This was one of three days presenting a rise in the last five trading days.
After a deep decline from February to early March drove the futures below $200/t, it eventually came back to the level at the beginning of this week.
China, the world's largest coal importer, has presented strong demand for seaborne imported coal to support its fast-growing economy post the COVID.
The country's manufacturing PMI in March touched 51.9, indicating an expansion of the factory activity. The official non-manufacturing PMI, which measures business sentiment in the services and construction sectors, rose further to 58.2 in March from 56.3 in February, hitting the highest since May 2011.
After a 71.4% rise in January-February period as showed by the official customs data, Kpler's cargo-track data showed China's seaborne coal imports continued to increase rapidly in March, with coal arrivals totaling 34.14 million tonnes, against 23.21 million tonnes in February and 15.5 million tonnes in March 2022. Official data for March imports are expected to be unveiled next week.
China extended zero-tariff on coal imports until the end of this year, facilitating imports from countries including Russia, Mongolia, South Africa, the U.S. and Canada.
China Electricity Council expected the country's power consumption to increase 6% in 2023, while support from hydropower generation could be limited as weather in this summer is forecast to be as hot and dry as last year. Coal will continue to play a crucial role in keeping factories and air conditioners on during the peak demand period.
Huaneng Hydropower announced on April 4 that the company's power generation totaled 15.6 TWh in the first quarter this year, down 11.44% year on year, due to low water level.
Meanwhile, the news that OPEC+ countries decided to cut oil production sparked speculative sentiment in the coal market.
On the day that the news was released, Brent crude settled 6.3% higher at $84.93 a barrel. On April 5, the futures settled up 0.1% at $84.99 a barrel.
In the short term, higher crude oil prices will likely result in higher coal prices in the global market, as the substitution effect causes producers to switch from oil to coal.
(Writing by Alex Guo Editing by Harry Huo)
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