WHC moving into base metals, logical move?, page-6

Analyzing the thermal coal markets has been increasingly about understanding coal demand in Asia Pac, which can be challenging as the information flow isn’t as good as in the Europe and US. While thecoaltrader principals love a good research trip to a Chinese port or chatting up Électricité de Vietnam in Hanoi, that’s not always in the cards, so it’s helpful when we get some good news flow from the Asian coal conferences as we did this week.

We’ve been looking at some news and presentations emerging from the recent CoalTrans conference in Beijing. The picture is of a market that was fundamentally weak in the first half of the year, with coal trade contracting by 37 million mt in the first 5 months of 2025, driven by lower imports by Asian consumers. Thermal coal demand in China has been dipping, leading to high stockpiles, as I’ve been discussing over the last couple of months, while India and South Korea’s thermal demand has been pretty tepid too.

In China, power demandhadbeen rising strongly in 2024, up by 5.3% y/y, but that growth rate has slowed to just 1.9% in the first 5 months of 2025. And that’s not good for thermal coal burn. Chinese coal demand has been robust in recent years despite all the new renewables additions to the grid because rising electricity demand meant that China relied on all generation resources. With nuclear and renewables generation growing some 4% y/y in China in the first 5 months of 2025, power demand would have needed to grow by at least that much to keep existing generation (mainly coal) steady. Instead, thermal generation in China (which is nearly all coal) was reported to have declined 3.8% y/y over January-May. At the same time, thermal coal production in China has inched higher, up 1.5% over the year-to-date (YTD). That’s caused coastal coal stockpiles to rise and imports to shrink.

And the decline in Chinese thermal coal imports has gotten worse in May:

As you can see from China’s May import chart above, Indonesian coal imports are taking the brunt of the decline in Chinese thermal imports. This has become the pattern in recent years, with China backing off the lower-quality coal imports from Indonesia in down years, while keeping purchases of high-cv thermal coal much more steady. When the higher-grade Australian material is selling at a “discount,” China is likely to buy more as it emits less per unit of energy and is harder to replace with domestic coal. Forecasts out of CoalTrans show Indonesian thermal coal exports (to all countries) falling 30 million mt y/y in 2025, while Australian thermal exports are only expected to decline some 12 million mt y/y.

So, this weakness in China has made me cautious on the thermal coal markets, as China is the world’s largest importer and drives so much sentiment. Yet, with Australian thermal coal exports to China holding up better than from other origins and supply more concentrated with a handful of suppliers, I still think that we’ve likely reached a bottom for high-cv coal prices, with NEWC high-cv coal prices hanging around the US$110/mt mark today, up $10/mt from late-April lows. API2 prices in Northwest Europe are trading around $103/mt today, also up $10/mt from the recent nadir.

I think that prices could slip back to the $90’s/mt if we have a mild summer in the Northern Hemisphere, but I think we’re more likely to stay in the triple digits if we get normal weather and some more supply response. Perret Associates, a reputable thermal coal market watcher whom I’ve followed for a long time, said at CoalTrans that we need to see another ~24+ million mt of coal supply cut from the seaborne thermal coal market to balance things in 2025 (see image below).

I think Perret’s assessment of the need for cuts is in the right range. I also think that another 20+ million mt in seaborne thermal coal cuts is possible, with declines to come from Colombian coals backed out of the Asian markets, and the shut in of Russian production. Freight rates from Colombia and the Cerrejon cost structure (given declining coal quality) is just too high to profitably reach markets outside of the traditional European and Turkish destinations. I think another 5 million in exports can be cut from Cerrejon. It would be wise of Glencore as the mine’s EBITDA margins of 13% in 2024 barely exceeded the firms internal hurdle rates of above 10%.

In Russia’s main thermal-producing region, the Kuzbass basin, the government has reported that, since the beginning of 2025, 64% of mining companies in Kuzbass were unprofitable. Low global thermal coal prices, and high railroad costs and logistical restrictions in Russia are all culprits leading to losses. Should Russia cut another 10-15+ million mt of thermal exports and Indonesia chip in with more cuts, I think we have a balanced market. A warm summer (which looks likely) can provide upside to demand help balances too.

China Huodian (one of the biggest coal-fired utilities in the country) was quoted at CoalTrans suggesting that China’s total (met + thermal) imports could drop from 543 million mt in 2024 to 400 million mt in 2025. I don’t think that the Chinese import crunch will be that severe when there are relative bargains in the high-cv thermal markets to be had.