A recovery in the global seaborne coal markets is unlikely in 2019 given a possible oversupply of 25mn-30mn t this year if exports are not reined in, Rodrigo Echeverri, the head of research at Noble Resources, said this week.
Total seaborne supply from many countries, and particularly Indonesia, could rise by around 25mn t to 1.02bn t this year, compared with relatively flat demand of 996mn t, according to Noble calculations. If nothing changes, 25mn-30mn t will need to be cut as it “cannot be absorbed by the market”, Echeverri told the Coaltrans Asia conference in Bali, Indonesia.
Producing countries, including Indonesia, Australia, Russia and Colombia, will need to make cuts across all grades. “Because of the magnitude of the oversupply… everybody has to do their bit,” he said, indicating that much of the hefty oversupply in the Atlantic will be heading for Asia.
Asia-Pacific demand is expected to be up by 15mn t at 833mn t this year, which would account for nearly 84pc of overall seaborne demand of 996mn t. But Atlantic demand of around 164mn t could be down sharply by 16mn t from last year as coal in Europe struggles amid plentiful supplies of cheaper gas and is disadvantaged by significantly higher carbon prices.
EU carbon allowance prices, which languished at around €7/t for years, began rising in 2018 and have since reached around €30/t following changes to the EU’s emissions trading system. As gas has a lower carbon footprint than coal, this has helped gas gain ground and displace coal in Europe, Echeverri said.
There was an emerging view that “to bring coal back fully into the mix in Europe — to the extent it was two years ago — you would need API 2 (cif northwest Europe NAR 6,000 kcal/kg) coal to drop to $18/t,” Echeverri said, adding that the market in Europe is “on a very steep decline from which it is not likely to recover”. The most recent API 2 index for the week to 21 June was assessed at $47.79/t.
Indian coal imports are likely to be the “bright spot” in the market at a possible 179mn t in 2019, which would be a 20mn t increase on the year amid strong economic growth. Although China’s strong imports have continued to surprise the market, Echeverri said strong domestic output and slowing economic growth could see its imports drop by 10mn t this year to 198mn t.
Coal and gas generation have lost ground to nuclear in South Korea this year, which could result in an 8mn t drop in imports after strong coal demand last year. Imports in the rest of Asia should rise by around 13mn t.
Indonesia has the ability to make substantial cuts after record exports in the second quarter. And Australia should reduce output too, especially of high calorific-value coal which is not needed, Echeverri said. Although US exports also need to be cut back, these supplies are largely hedged and are therefore unlikely to be reduced this year.
The executive director of the Indonesian coal mining association (APBI-ICMA), Hendra Sinadia, told the conference that the industry had become concerned about oversupply given the increasing coal volumes being redirected to Asia. “We think supply discipline will be very important.”
Energy ministry officials told the conference that Indonesian coal production had been at a high of more than 550mn t in 2018, exceeding the 485mn t initial plan, as the industry responded to strong international prices. But strong output had put pressure on coal prices and the government is now committed to controlling output with a 480mn t target this year to try to stabilise coal prices and conserve reserves.
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- On June 27, 2019