18-03-2016

Indonesia Is Losing Its Cost Competitiveness : Mr. Girish Koulgi, Noble Resources

GirishKoulgi

Coaltrans 2016 held early this month in Goa played host to Mr. Girish Koulgi, Director- Coal, Noble Resources.  Facts and changes in India’s import volumes, stockpiles, bottlenecks facing the coal industry and analysis of trade flows in the Asia Pacific region were the focus of Mr. Koulgi’s talk.

Speaking about the expectations of China in 2016-2017, Mr  Koulgi said, “The Chinese market will remain weak in 2016, but some signs of stabilization have started to emerge. Chinese domestic prices have started to level off as the government makes efforts to cut over-supply.   China is moving away from industrial economy. Cost structures have improved as a result of better infrastructure (rail de-bottlenecking).”

Mr. Koulgi expects China’s thermal coal imports to drop slightly YOY, reaching approximately 100 million tonnes (-20 to -30 million tonnes from 2015). The sub-bituminous market is expected to decline to limited demand in a few coastal plants that cannot blend lignite. Preference for 4200 GAR Indonesian material is set to remain firm, as an ideal and cheap blend for high-sulphur Chinese coals.

Commenting on the Northeast Asian market, Mr Koulgi shared that Japan has been a stable market after the nuclear incident in the recent past. There are a lot of new expansions in Korea. Taiwan continues to grow. As far as Hongkong is concerned, there has been a slight reduction in coal demand as a result of government policy on the energy mix.  There has been some amount of healthy growth in South East Asia markets of Malaysia, Thailand, Phillipines and Vietnam.

There has been a slide in the UK market due to switching to gas and the increase in the carbon price floor to £18.08 per tonne of CO2. Seaborne cash costs have nearly halved between 2012 and Q1 2016.Australia, Russia and Colombia have been the big winners in the costs race.

In continental Europe, low prices for oil-linked Russian gas will increase pressure on coal in the mix. 

Addressing the question of how much coal is available at current prices, Mr. Koulgi said, “In Australia the maximum pressure has been on the metallurgical market thereby increasing the availability of thermal coal.  As mines age and CV declines, Indonesia is losing its cost competitiveness. South Africa remains competitive and well placed with the availability of RB1 becoming tighter, but RB2 and RB3 will remain robust.  Aggressive growth is happening in Columbia as coal chains are debottlenecked- costs are among the lowest in the seaborne market.

Talking about the impact of India in supply and demand balance, he added the rise of imported coal coincided with the industrial/economic growth as the domestic growth could not catch up entirely.  Now the domestic production is up, the demand has slowed down and the global oversupply exists. Imports in MT grew @20%; but after energy adjustment, maybe only 10-12%. Several medium to high CV users stepped down their CV requirements. Period coincided with massive growth in low CV production in Indonesia. In 2014, imports from RSA grew ~40% Y-o-Y; but major contributor was non-RB1 product flow.

Is imported coal here to stay? With prices below2008 (GFC), the trend is reversing. Global oversupply and slowing China demand are two of the many causes. Power demand remains subdued. Power tariffs have weakened all over the country. Power sector in India is still reeling under accumulated losses at DISCOM level.  Coal faces serious competition from renewable energy. In conclusion there is an increasing probability of a weak Indian coal market in 2016 and 2017.

Source: TST Newsdesk 

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