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Coal, LNG prices heat up as snow hits Tokyo, Beijing

David Mareuil | Anadolu Agency | Getty Images

An early winter sharp cold snap in northeast Asia and the first November snow fall in Tokyo in 54 years this week has boosted prices for thermal coal and liquefied natural gas (LNG) as power stations fire up to meet a surge in electricity demand.

The cold snap is linked to the La Nina weather event in the Southern Hemisphere that can lead to sustained and disruptive variations in normal seasonal weather patterns. The snow in Tokyo for example was enough to delay rail services.

At the same time, China aviation authorities cancelled more than 80 flights in the capital Beijing on Monday, while road traffic slowed to a crawl after the earliest such cold spell in three decades. Temperatures dropped to -9 degree Celsius (15.8 Fahrenheit) earlier this week after an alert issued Sunday warned of heavy snowfall and blizzard conditions in northern China.

Meanwhile, the South Korean weather agency has also warned of imminent snow as temperatures fall to -4 degrees Celsius.

To beat the cold, China has temporarily eased restrictions on coal production until the end of the year as Premier Li Keqiang said there was a need to balance demand to ramp up power output against pollution control.

Spot thermal coal prices from the Australian port of Newcastle have already doubled year-to-date to top over $100 a metric ton, underscoring its position as one of the best performing raw materials this year amid a broad and extended slump in the commodities complex.

The jump in prices prior to the current cold spell came after Chinese government ordered a cut in domestic output to mop up excess capacity and stem air pollution and as investors bet La Nina-related wet weather would cause production glitches in key regional exporters Australia and Indonesia.


Snow falls on Tiananmen on November 21, 2016 in Beijing, China. The first snow in 2016 winter fell on capital city Beijing since 8 pm on November 20 and would last over 40 hours, according to Beijing meteorological authority.
VCG | Getty Images
Snow falls on Tiananmen on November 21, 2016 in Beijing, China. The first snow in 2016 winter fell on capital city Beijing since 8 pm on November 20 and would last over 40 hours, according to Beijing meteorological authority.

Still, coal's solid run faces headwinds beyond winter as China attempts to move to cleaner fuel sources.

With the Chinese market a major driver of coal demand in Asia, any policy changes in the country will affect prices, contributing to the likelihood of continued price volatility in the seaborne coal market, wrote Wood Mackenzie's principal analyst for mining and metals fundamentals research, Rory Simington in a Nov. 16 report.

Demand for other fuels has seen spot LNG prices in Asia hit their highest level in 11 months at $7 per 1 million British thermal unit (mmBtu) in early November70 percent higher than an April low, reported Nikkei.

Benchmark LNG prices in Asia are based on transactions of cargoes sold to Japan and Korea, two large importers. Demand for LNG in Japan jumped in the wake of the March 2011 Fukushima nuclear disaster that led to shutdowns of nuclear power plants across the country for safety checks.

The government of Prime Minister Shinzo Abe has since allowed many of the units to restart operations and pledged to continue with nuclear power as a key part of the country's energy mix.

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