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Tuesday, 08 October 13
CHINA: INTENSE COMPETITION AMONG DOMESTIC COAL MINERS AS 2013 IMPORT DEMAND REMAINS STRONG - WOOD MACKENZIE
 Prices will not fall under RMB500/t or risk supply availability to the coastal market
Despite China's lower economic growth, Wood Mackenzie says that import demand will still meet previous high expectations, although overall demand growth will be lower. This is due to lower seaborne coal prices compared to domestic coal prices in coastal China. As such, domestic producers are competing for market share by lowering prices in spite of negative margins. This explains the recent continuous drop in Chinese coal prices. However, Wood Mackenzie says that coastal China coal prices will be supported at *RMB500 per tonne (t) as at this price level 40% of domestic supply operates at negative margins.
China's gross domestic product (GDP) growth has slowed from 9.3% to 7.5% from 2011 to 2013. As a result, power demand growth has slowed in China and coal demand in coastal provinces has remained flat, staying at 2011 levels of 1.2 billion tonnes(Bt). In contrast, seaborne demand increased rapidly - This year, Wood Mackenzie expects China to import 235Mt of thermal and 67Mt of metallurgical coal, up from 168Mt and 31Mt respectively in 2011. This translates to a growth in share of seaborne imports into coastal China from 17% to about 25% between 2011 to 2013.
Wood Mackenzie's Senior Analyst Coal Market Research, Mr. Prakash Sharma says, "The trend of increased coal imports has been aided by weak coal prices in the international market. This means that Chinese coal import demand is almost entirely driven by the competitiveness of imported versus domestic supply. As such, large Chinese miners are adopting volume strategy by producing more to bring down operating costs and pricing lower to maintain market share."
These measures will hold market share in the short-term but may be counter-effective if prices fall too low in coastal China. Therefore we believe prices find a floor at RMB500/t. Small to medium sized domestic players will be most affected due to relatively high fixed labour costs and mine safety expenses in China. Large producers such as Shenhua and China Coal, who have resorted to aggressive pricing, contribute almost 50% of China's domestic coal production. The remainder 50% comes from the small to medium size miners.
Rohan Kendall, Senior Analyst for Coal Supply Research, says, "At RMB 500/t, we estimate that 40% of China's thermal coal production will produce at negative margins. Small to medium sized producers operating at negative margins, particularly those producing low-energy coal, face a real risk of mine closures. The situation may also trigger further consolidation of small loss-making mines in China."
Summarizing, Mr Sharma says, "The 40% of domestic production producing at negative margins equates to about 150% of the size of the current seaborne market. Full replacement volumes cannot feasibly be sourced from imports without creating a price response that will actually incentivise domestic miners to remain in production. Therefore, we believe prices will be supported above RMB 500/t, turning the tide on the current price trend."
*All prices refer to benchmark FOB Qinghuangdao Thermal coal price (5500 kcal/kg NAR basis) inclusive of 17% VAT.
Editor's notes:
Wood Mackenzie is the most comprehensive source of knowledge about the world's energy and metals industries. We analyse and advise on every stage along the value chain - from discovery to delivery, and beyond - to provide clients with the commercial insight that makes them stronger. For more information visit: www.woodmac.com
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Friday, 30 August 13
US COAL PRODUCTION FELL 0.48 PERCENT WEEK ON WEEK - EIA
COALspot.com – United states the world’s second largest coal producer produced totaled approximately 20.70 million short tons (mmst) of ...
Thursday, 29 August 13
HANDY: THE PACIFIC MARKET STARTED HEALTHY THIS WEEK - FEARNRESEARCH
Handy
The Pacific market started healthy this week. We have seen many bauxite, iron ore and few coal fixtures. Ships passing Singapore were able to ...
Thursday, 29 August 13
NO RATING IMPACT ON INDONESIAN ENERGY COMPANIES FROM RUPIAH DEPRECIATION - FITCH RATINGS
Fitch Ratings says the credit profiles of rated Indonesian energy and utilities companies, including thermal coal producers, will largely remain una ...
Wednesday, 28 August 13
THE BDI HAS MOVED TO LEVELS CONSIDERABLY STRONGER THAN THE BEGINNING OF THE YEAR - INTERMODAL
By George Bassakos
SnP Broker - Intermodal
We have already reached the end of August and whilst students are preparing themselves for another sc ...
Tuesday, 27 August 13
AUSTRALIA NEWCASTLE COAL EXPORTS JUMPED 15.59 PERCENT ON WEEK
COALspot.com: Power plant and semi-soft coking coal shipments from Australia's Newcastle port up 15.59 per cent week on week to 2.76 million mt for ...
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- Medco Energi Mining Internasional
- Electricity Authority, New Zealand
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- New Zealand Coal & Carbon
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- IEA Clean Coal Centre - UK
- Pendopo Energi Batubara - Indonesia
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- Toyota Tsusho Corporation, Japan
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- Commonwealth Bank - Australia
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- Parliament of New Zealand
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- Jindal Steel & Power Ltd - India
- Bharathi Cement Corporation - India
- Aditya Birla Group - India
- Binh Thuan Hamico - Vietnam
- Billiton Holdings Pty Ltd - Australia
- Independent Power Producers Association of India
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- Larsen & Toubro Limited - India
- Antam Resourcindo - Indonesia
- Petron Corporation, Philippines
- Bukit Baiduri Energy - Indonesia
- Indogreen Group - Indonesia
- Anglo American - United Kingdom
- Energy Development Corp, Philippines
- Planning Commission, India
- Bhoruka Overseas - Indonesia
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- Merrill Lynch Commodities Europe
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- Coal and Oil Company - UAE
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- PTC India Limited - India
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- Meralco Power Generation, Philippines
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- Kepco SPC Power Corporation, Philippines
- CNBM International Corporation - China
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- Indian Oil Corporation Limited
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- Vizag Seaport Private Limited - India
- The State Trading Corporation of India Ltd
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- Gujarat Mineral Development Corp Ltd - India
- Eastern Coal Council - USA
- Straits Asia Resources Limited - Singapore
- The Treasury - Australian Government
- London Commodity Brokers - England
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Economic Council, Georgia
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- Edison Trading Spa - Italy
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- Therma Luzon, Inc, Philippines
- Sojitz Corporation - Japan
- Videocon Industries ltd - India
- Port Waratah Coal Services - Australia
- Global Business Power Corporation, Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Ministry of Transport, Egypt
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- Heidelberg Cement - Germany
- Latin American Coal - Colombia
- Chamber of Mines of South Africa
- Interocean Group of Companies - India
- Electricity Generating Authority of Thailand
- Australian Coal Association
- Energy Link Ltd, New Zealand
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- SMC Global Power, Philippines
- Tata Chemicals Ltd - India
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- Global Green Power PLC Corporation, Philippines
- Ceylon Electricity Board - Sri Lanka
- Leighton Contractors Pty Ltd - Australia
- Parry Sugars Refinery, India
- MS Steel International - UAE
- Ministry of Finance - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Tamil Nadu electricity Board
- Intertek Mineral Services - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Sical Logistics Limited - India
- Metalloyd Limited - United Kingdom
- Neyveli Lignite Corporation Ltd, - India
- Offshore Bulk Terminal Pte Ltd, Singapore
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