Singapore Coal Monthly: Expecting a healthy price correction May 7, 2018 921

What is the news?


On 16-Apr, the authority re-imposed a new round of restriction on coal imports at southern and eastern ports located in Zhejiang, Fujian, Guangdong, and Guangxi provinces. The regulations ranged from bans on unloading to tighter customs clearances. It is viewed as supporting the domestic coal prices and re-channelling profits back on domestic producers.


According to Platts, Indonesian coal miners reported health average selling price (ASP) in 1Q18. The growth of ASP was attributable to strong demand from China and weather-related supply disruptions. 1Q18 production from Adaro Energy, the largest coal miner in Indonesia, dropped by 8% YoY, while Bukit Asam, another coal giant reported an 18% YoY jump in production. 

The cooling measure is seasonal

In retrospect, the initiation of the ban on imported coal through small ports was in Jul-17. It persisted until the end of the year. However, the extreme winter climate led to a surge in demand for coal. During that period, the domestic production failed to catch up, resulting in more reliance on imported coal since Dec-17, Shown in Figure 1 and 2. In early 2018, the Big 4 power generators urged to loosen the control on imported coal, and the authorities relented in Feb-18. As shown in Figure 2 and 3, the jump of power demand aligned with the rebound of imported coal in Jan/Feb-18. The new round of restrictions is to protect the domestic coal miner’s interest given the domestic capacity is relatively sufficient to cater to demand during the slack season.  It is worth noting that the restrictions are mainly imposed on small ports rather than the large ports. Import volume from small ports accounts for less than 30% of the total amount. China still relies on imported coal to fill the demand gap. We believe the restriction is to maintain the domestic coal miners’ market share amid a healthy supply-demand dynamic.

Coal price topped out in 1Q18

See Figure 3 and 4, the uptrend of coal prices starting in Jul-17 lasted for 9 months until Mar-18. The HBA index reached 6-year high, so did Qinghuangdao 5,500 GAR FOB price in 1Q18. In Apr-18, Coal prices started to correct (down c.10% MoM) due to a moderation in demand after winter. Accordingly, more supply began to build up. Shown in Figure 6, the port coal stockpile surged in Mar/Apr-18. We believe the seasonal correction of price is healthy given the recent coal price level have created untenable pressure on both China and Indonesia thermal plants for months. This implies less intervention by authorities on behalf of these utilities.

Coal counters monthly updates

Golden Energy and Resources (Target px: S$0.48 / BUY)

  • FY17 production arrived at 15.6mn tonnes (+64.2% YoY).
  • Secured 13 offtake agreements for 15mn tonnes of coal sales in FY18.
  • Sales target in FY18 will be 20mn tonnes.
  • Cash position reached US$189mn as of Mar-18.

Geo Energy Resources (Target px: S$0.47/ BUY)

  • FY17 production arrived at 7.7mn tonnes (+40% YoY).
  • Secured an offtake agreement with ECTP for 7.5mn tonnes coal supply in FY18.
  • Sales target in FY18 will be 11 to 12mn tonnes.
  • Cash position reached US$262mn as of Dec-17.

Investment action

We remain upbeat on the sector as we expect coal price (FY18e for 4,200 GAR: US$40/tonne, 1Q18 4,200 GAR: US$52.4/tonne) will be favourable for coal miners. Meanwhile, the ramp-up of production is still on track. The risk worth drawing attention to is the monsoon season that could cause some disruption to operations. We maintain BUY rating on coal sector.

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About the author

Profile photo of Chen Guangzhi

Chen Guangzhi
Investment Analyst
Phillip Securities Research Pte Ltd

Guangzhi graduated from Singapore Management University with a Master degree in Applied Finance and from South China University of Technology with a Bachelor degree in Electronic Commerce.

The current sector coverages include Energy, Utilities, and Mining sectors. He has 3 years experience in equity research in both Hong Kong and Singapore market. He is the mandarin spokesperson for Phillip Securities Research in relation to China-related projects and all mandarin seminars and client events.

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