Mr. Deepak Kannan, Managing editor, Thermal Coal, Platts Asia Thermal Coal, was one of the speakers at the Coaltrans2016, held at Goa from 2-4 March 2016. Analysis of current price drivers in seaborne thermal coal, the changes in the Chinese market, What is the current status of coal exporting countries? How long will the coal oversupply last? At what rate will India’s coal imports continue to rise? These are some of the issues addressed by Mr. Kannan.
China’s imports continue to dwindle. There is not much of arbitrage left for domestic and imported coal. China’s domestic production is of 4 billion metric tonnes per annum. China introduced a lot of measures to restrict imported coal and support its ailing domestic industry as the prices were falling significantly. As a result, Chinese buyers prefer to buy from the domestic market than the imported market. Though coal is still dominant in power generation, China’s power mix is moving away from coal to hydropower, nuclear, gas, solar and wind energy.
The major setback for the India’s domestic coal industry in the past was the lack of proper infrastructure. Today all that is changing. Among other things, the government expects to complete construction of three new rail lines that will link 300 Million MT of untapped reserves in central and eastern India, to the market by the start of 2018. The Indian coal production is on the rise. While the energy needs of India swell, domestic coal production has not grown to match the rising demand. Earlier many power plants had coal stocks only for four days. Now they have stocks for 15-20 days.
The Indian market remains a harbinger of demand side hope for imported coal from Indonesia, South Africa and to a limited extent, Australia, amid the fallout from the Chinese slowdown.
Forecasts point at a 48% increase in coal capacity build out by the end of 2018 and due to an expected reversal of the decline in load factor in the medium term based on mean reversion to the historical trend, average coal consumption is likely to be up around 58% from levels in September 2015.
Indonesian coal continues to command a premium. Each of its calorific value has evolved as a brand by itself. Exports from Indonesia are dropping. The onus is on Indonesia to cut production. The major producers of Indonesia contribute 70% of the total production. These large producers have not cut down production in the wake of low demand from other countries. The production cuts are coming from the smaller companies that are not able to cope up with the falling demand and falling prices. Some of the end users who used to buy Indonesian coal have now shifted to South African coal. This is because the South African prices have dropped and remain attractive. Indian buyers have snapped up South African coal. In Dec 2015, India brought nearly half of South Africa’s thermal coal produce.
One of the major factors that affected the Indian buyers was the freight rates. Now with the freight rates so low, people are trying out different coals from different origins. As a result Columbian coal has made inroads into the Indian market as its cheaper when compared to the South African Coal. There are opportunities for the Columbian coal in the China market too. Only time will tell if Columbian coal is here to stay.
Australian coal imports have seen a drop due to Chinese entry restrictions. Australian production costs have also dropped. Around twenty mines from Queensland, Australia are making significant losses.
The falling freight rates have made the pet coke attractive. Pet coke imports in China are one of the reasons for the fall in prices. India took full advantage of the falling prices. There is a lot of expectation for pet coke demand to rise in India. Several Indian cement makers have shifted to petcoke amid attractive prices.
The US fuel grade petcoke exports has remained stable in 2015 when compared to 2014. Although India is a very small market for the US at the moment, it is expected to pick up in the coming days. The emergence of Saudi Arabia’s petcoke has given competition to the US fuel grade due to competitive pricing. Indian imports of petcoke are expected to reach up to 10 million MT in the next three years.
In conclusion, Indian demand for imported thermal coal may be impacted by domestic material.
The Indian buyers continue to enjoy a plethora of options amid oversupply and cheap freight rates.
Source: Ms. Shyamala , Capt. Virendra N Mishra
TSTNewsdesk (The Shipping Tribune)