World Trade
World trade in thermal coal is estimated to have grown by 1.0 per cent to 1.1 billion tonnes in 2018 but it is expected to decline by 1.5 per cent to 1.08 billion tonnes in 2019, and by 1.8 per cent to 1.06 billion tonnes in 2020 said department of industry, innovation and science, Australia in its latest report. Underpinning the decline in world trade is a decline in thermal coal imports from China and advanced economies, which is offsetting growth from emerging economies in Asia
World imports - Import restrictions to drive down China’s thermal coal imports
According to department of industry of Australia, China’s imports of thermal coal slowed substantially in September and October 2018. Imports have been weighed down by import restrictions, an on-going depreciation of the yuan and a rebound in domestic production. At the time of writing (December 2018), the report says, trade data was not available for the last two months of the year. However, a sharp decline in thermal coal imports is expected, with import controls tightened from mid-November to the end of 2018, and possibly through to Chinese New Year, as the government attempts to cap imports to alleviate pressures in an oversupplied domestic market.
China’s coal imports will continue to be driven by government policy
With supply side reforms in China’s coal sector largely concluded, and new additions to capacity on the horizon, domestic supply is expected to increase over the next two years, resulting in reduced import demand. Ongoing coal to gas switching is also expected to contribute to declining thermal coal imports over the forecast period.
Industrial policies, safety and environmental policies, and controls on imports, are all expected to affect the pace at which new domestic supply comes online and the trajectory of China’s thermal coal import demand over the next two years. Government policy thus remains the largest uncertainty over the outlook period.
Import demand from Japan and South Korea to marginally decline
The report noted that, Japan’s imports of thermal coal in 2018 have been broadly steady year-on-year, but are forecast to decline marginally over the outlook period, driven primarily by softer demand due to nuclear restarts. At the time of writing, nine of Japan’s fleet of 42 nuclear reactors had gained approval to restart. Eight of these reactors were in operation, with the remaining one offline for regular maintenance. Eighteen reactors currently have applications for restart. Japan’s Institute of Energy Economics expects two reactors to restart by 2020, with an additional three restarts also possible by 2020. However, on-going legal disputes and public opposition could lead to delays.
South Korea’s thermal coal imports have also been broadly steady year-on-year. While Australia and Indonesia remained its largest suppliers, South Korea has continued to diversify its sources of thermal coal. In the four months to October 2018, imports from Australia and Indonesia declined by 4.7 and 13 per cent year-on-year, respectively, while imports from Canada, Colombia and Russia increased by 61, 58 and 17 per cent, respectively, although from a lower base.
South Korea’s thermal coal exports are forecast to decline marginally over the outlook period, as a result of ongoing government efforts to reduce the country’s reliance on coal. After a one-month trial of a cap on the sulphur content of coal burned in October, the government will impose the cap again in March to May 2019, a month less than originally expected. As the cap applies to coal burned, not imports, higher sulphur coal can be blended with lower sulphur products. Australian coal is not expected to be substantially affected, with power generators reported to be forgoing South African and Indonesian coal rather than Australian coal.
India’s domestic production struggles to keep pace with demand growth
India’s thermal coal imports have increased in 2018, driven by strong demand. India’s domestic coal production has not kept pace with rising demand from the power and industrial sectors. The government has directed Coal India, the state-owned coal producer, to divert supply to power plants in the lead up to winter, leaving industrial users to source coal from seaborne markets. While India’s domestic thermal coal production grew by a solid 9.7 per cent year-on-year in the year to October to 551 million tonnes, efforts to ramp up domestic production to meet demand have been constrained by domestic infrastructure bottlenecks. Despite government plans for self-sufficiency, India’s thermal coal imports are forecast to grow modestly over the outlook period, as growth in demand continues to outweigh growth in domestic supply.
World exports
Indonesia’s thermal coal exports forecast to decrease from current levels Indonesia’s thermal coal exports reached 316 million tonnes in the year to September 2018, an increase of 11 per cent year-on-year. Despite weather-related supply disruptions, the Indonesian government has taken advantage of strong seaborne demand to boost exports, revising the 2018 production target from 485 million tonnes to 507 million tonnes in August. The additional production is intended to increase exports.
The government has historically prioritised securing low-cost coal for the domestic power sector, with price caps and tonnages reserved for domestic markets. However, coal is one of the country’s largest exports, making it a potentially important means to reduce the country’s trade deficit. Indonesia’s thermal coal exports are nonetheless forecast to decrease over the next two years, as meeting domestic demand gradually takes precedence again.
South Africa’s coal exports to remain subdued
South Africa’s thermal coal exports have remained subdued throughout 2018, totaling 65 million tonnes in the year to September, down 3.9 per cent. South Africa’s thermal coal exports are forecast to remain largely flat over the outlook period, weighed down by minimal investment in new mines. Eskom, the national electricity utility, has faced increasingly severe shortages of coal, which could result in the adoption of long-term contracts and more thermal coal being diverted to the domestic market, the report said.
Russia’s thermal coal exports forecast to grow
Russia’s largest dedicated coal port, Vostochny, exported 20 million tonnes of coal to the seaborne market in the year to October. This is 6.0 per cent higher than the same period last year, and reflects strong Asian demand. Russia’s thermal coal exports are forecast to continue to grow over the outlook period, driven by growing sales to the Asian market, a weak Ruble, and upgrades to its rail and port infrastructure.
Thermal coal exports from swing producer United States forecast to fall
According to report, the Thermal coal exports from the US have surged in 2018, with exports over the year to September growing by 44 per cent, predominantly to Asian markets. Thermal coal exports from the US are forecast to fall from 2018 levels over the outlook period, but remain strong relative to 2014 to 2017 levels. The US is a swing producer of coal, and exports are expected to decline in line with prices.
Australia - Thermal coal exports earnings forecast to reach a record $26 billion
Australia’s thermal coal export earnings totaled $7.2 billion in the September quarter of 2018, increasing by 34 per cent year-on-year. The strong growth in export earnings was driven by high prices and growth in export volumes, which increased by 4.1 per cent year-on-year to reach a record 55 million tonnes.
Revisions to the outlook
Australia’s thermal coal export earnings have been revised up by $3.2 billion in 2018–19, and by $0.8 billion in 2019–20 from the September Resources and Energy Quarterly, reflecting a weaker outlook for the Australian dollar, and modest upwards revisions to prices and volumes.
Modest recovery in Australia’s coal exploration expenditure
In the September quarter of 2018, Australia’s coal exploration expenditure totaled $43.6 million, remaining steady from the June quarter of 2018, and increasing by 24 per cent year-on-year. The recent recovery in coal exploration expenditure reflects firmer prospects for the sector, on the back of the recent improvement in market conditions.
Source: Thermal Coal - Resources and Energy Quarterly December 2018 - Department of Industry, Innovation and Science, Australia
