South Korea-delivered coal prices rose sharply this week on the back of strength in the global coal market, exacerbated by the Indonesian government's export ban for firms failing to meet domestic coal sales quotas.
The Indonesian government has re-introduced its domestic market obligations (DMOs) policy, which requires Indonesian coal producers to meet annual domestic sales targets or face losing their export licences. At least 32 producers that were reported to have failed to fulfil their DMOs were banned from exporting this week, tightening regional supply fundamentals.
Argus assessed NAR 5,800 kcal/kg coal prices at $133.74/t fob Newcastle and $148.43/t cfr South Korea this week, which were up by $14.61/t and $9.41/t on the week, respectively.
There were at least three coal tender awards in South Korea this week. State-owned utility Korea Western Power (Kowepo) reportedly procured two Capesize vessels of NAR 5,250 kcal/kg with 19.5pc ash content coal from an Australian mining company at about $116/t fob Newcastle on a NAR 6,080 kcal/kg basis. The cargoes are for loading between the second-half of September and October.
Fellow utility Korea Southern Power (Kospo) closed a three-year term tender on 11 August, purchasing 240,000t of NAR 3,800 kcal/kg Indonesian coal for the first calendar year from a South Korean trading and mining company at about $122/t fob Taboneo on a NAR 6,080 kcal/kg basis. The cargoes are to be loaded on Panamax vessels from October-December.
Independent power producer GS Donghae was scheduled to close a four-year term tender today, seeking a combined total of 240,000t of NAR 4,700-5,499 kcal/kg coal with a maximum sulphur content of 0.4pc on an air-dried basis. The result could not be confirmed at the time of writing, but the first shipment of 58,000t is to be made by the first half of December.
Despite the series of tender awards, one of the state-owned utilities told Argus today that it has procured enough coal for the year and will procure further cargoes through private negotiations only for blending to improve the average quality of their feedstock.
South Korean thermal coal imports rose to an all-time high of 11.6mn t in July, up by 2.3mn t, or a quarter on the year, because of surging overall power demand and nuclear shutdowns.
South Korean coal-fired power output is likely to have increased by 2GW to an average of 27.2GW last month, which is equivalent to an additional 560,000t of NAR 6,000 kcal/kg coal burn at 38pc efficiency and 7.6mn t in total, according to Argus analysis.
Power demand in South Korea has probably passed its seasonal peak with the early arrival of the second rainy season, which could limit power-sector coal consumption and ease utility demand in the seaborne market. South Korea's daily peak power demand reached as high as 91GW on 27 July, up from the seasonal peak of 89GW last year and an 88GW average from 2016-19.
The Korea Meteorological Administration has issued a weather warning across the northeast region of the peninsula as overall precipitation is expected to range from 30-100mm.
Meanwhile, state-owned power company Kepco reported a provisional first-half loss of nearly two trillion won ($1.7bn) in 2021, the company said today. This was because of higher operational expenses, with fuel purchasing costs having increased by 3.6pc on the year.
Rainy season hampers power demand
Net-forward coal prices to Japan rose again this week, moving in tandem with the sharp upside in fob prices in Australia and Russia.
Heavy rains across the country and the holiday season resulted in lower power demand, which fell by a tenth on the week and by 4pc on the year to 106GW from 6-12 August. Wholesale electricity prices for day-ahead delivery on the Japan Electric Power Exchange (Jepx) declined by 15.2pc from a week earlier to an average of ¥8.51/kWh ($81.55/MWh) over the week to 13 August, while prices in the eastern Tokyo area dropped further, by 22.6pc, to ¥8.54/kWh.
Temperatures in Tokyo were nearly 2°C below the seasonal norm today and are forecast to fall to more than 4°C below the historic average on Monday next week, according to Speedwell Weather data.
