Coal stocks at key global hubs fall by half in 1H 2021
The ratio between coal stocks and daily consumption or use across key global hubs almost halved on the year by the end of June according to Argus analysis, amid recovering demand and a sluggish supply response this year.
Coal stocks — expressed as the number days of local consumption or throughput — were 47pc lower on the year at less than 40 days in June, nearing the bottom of the 2017-19 range. This is according to Argus analysis based on available data for the US, China, India, Japan, the Amsterdam-Rotterdam-Antwerp (ARA) transshipment hub in Europe and the Richards Bay Coal Terminal in South Africa, and weighted according to each market's share of the combined inventory.
The annual decline compared with the middle of 2020 reflects a tighter supply-demand balance in 2021, which has been a key factor in driving seaborne prices higher and remains a risk ahead of the northern hemisphere heating season.
The so-called days-of-use indicator shows how many days current stocks would last, based on the latest rate of consumption. It provides more context about the fundamental supply-demand balance than looking at the absolute level of coal stocks, as it also factors changes in consumption trends.
There are two main drivers behind the decline in global days of use. First, global supply constraints in 2021 driven by inclement weather early in 2021, reduced railing and discharging capacity and mining disruption from safety checks, strikes and protests. Second, a compounding impact from rising coal burn in some markets, particularly China and India, driven by firm power demand, and gas-to-coal switching in the Atlantic because of surging gas prices. Both factors have created a perfect storm for a tight global fundamental balance so far in 2021.
China and India stocks wane on firm coal burn
Chinese power utility stocks account for around 36pc of the total sample in Argus' calculation, and therefore have a large influence on the aggregate figure.
Mining accidents, continuing safety checks and the unofficial ban on imports from Australia have all hampered supply in China this year, while thermal power generation, which is largely coal-fired, has surged with the wider economy during China's post-pandemic recovery.
As a result, Chinese utility stocks have plummeted from 17 days of use in October 2020 to only seven days in March 2021 and hovered below 10 days until June, the lowest range since March 2017.
Similarly, in India, coal-fired generation has grown strongly in 2021, pressuring outright and days-of-use stocks. At the end of August, the government urged utilities to consider increasing imports to boost availability.
The power ministry has also asked state-controlled coal producer Coal India (CIL) to meet its supply targets to help build the stocks, well ahead of the winter season when coal transportation is also affected by fog. CIL has already said it will raise supplies to power plants with low coal stocks.
The tight stock balance in both China and India could lend additional and early support to spot demand ahead of the upcoming winter season, and poses an upside risk to prices if stocks remain low and leave the market exposed in the event of unusually cold conditions.
Strong Asian premium pares ARA supply
Days of use at the ARA hub in northwest Europe halved on the year in June but remain relatively high at 100 days.
Absolute port stocks are down on the year, while coal-fired generation has recovered on gas-to-coal switching and subdued renewables output, pressuring the days-of-use indicator. But northwest European coal burn remains much lower than in the years before the pandemic, meaning days-of-use stocks are still relatively high by historic standards.
In addition to supply constraints affecting Colombian exports to Europe, Asian coal markets held a wide premium to Europe in the first half of the year, which helped to draw some flexible supply out of the Atlantic and limited the recovery in overall supply. This helped to accelerate the decline in days-of-use stocks in northwest Europe.
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