This Critical Coal Event Is Back On

There's an eerie silence in the coal market right now.

Trading sources like Platts are reporting that coal transactions globally have suddenly gone very quiet. At least in certain segments of the market.

Particularly for lower-grade thermal coals. With sources noting that demand for 3,800 kcal/kg product is "nearly absent" from the market.
The reason for the lull has been somewhat mysterious. Until we got a key piece of news late last week out of China: the ban on low-quality coal imports may be back on again.

Chinese traders noted that government officials now seem bent on getting rid of poor-quality coal at the nation's power plants. With one source saying officials will "definitely ban low-grade steam coal import within this year." An unnamed source from a Chinese power utility echoed the sentiment, saying, "The government is serious this time due to rising pollution and public anger."

We've of course seen this movies before. With the government relenting on a coal ban at the last minute. But this time, the sense is the pressure may be too much to ignore.

This breaking development may also explain another reported change in coal buying patterns of late: growing demand for higher-quality coals.
According to traders quoted by Platts, the market for 5,000 kcal/kg coal is seeing significant "supply tightness." With shipments for March being very difficult to obtain.

This could represent buyers looking to secure good-quality supply that will pass import muster in the event of a Chinese ban. The laws reportedly will affect product below about 4,000 kcal/kg--so we may be seeing 5,000 kcal/kg coal becoming the go-to product.

This has some big implications. Such higher-quality coal is harder to come by. Especially in places like major coal-exporting nation Indonesia.

If the trend continues, buyers may be forced to increasingly look to shippers like Australia and South Africa--where better-quality coal supplies are larger. Potentially making the market for these "good" coals a lot tighter. And driving up prices for product here.

Keep an eye on this story--it changes a lot of things.

Here's to banning the (smoke) bomb,

Dave Forest