Prices for Australian thermal coal have jumped almost 8% since the beginning of the month as an El-Nino related heat wave in Southeast Asia has increased demand for power, while hitting hydropower generation levels, forcing utilities to boost electricity production from alternative sources.
In Vietnam, for example, power consumption has jumped 11.31% y/y in the first five months of 2015, with coal’s share of the energy mix rising to over a third, Reuters reported. The country’s coal exports have also dropped 77.2%, further tightening coal supply in the region.
Commodity brokerage, Marex Spectron, said it was bullish on short-term demand, as supply conditions would remain relatively tight due continuing El Nino conditions, which tends to affect rainfall during the critical monsoon season in South and Southeast Asia.
In India, hydropower can replace up to 0.3 TWh of coal-fired generation during a normal monsoon season as dams fill up. But lower seasonal rainfall reduces hydropower availability, leaving coal to fill the gap.
Both Australian and South African coal is now trading at US$5/t more than cargoes sold into Europe, which also include freight costs.
Written by Jonathan Rowland. Source: Reuters.