Coal news and updates

The global market for seaborne thermal coal will be oversupplied by about 10-million tonnes this year, keeping prices below profitable levels for most coal producers well into 2015 or longer, and forcing more mines to close.

 

Coal prices have halved over the past three years as a result of rising output from exporters including South Africa, Australia, Indonesia, Colombia and the US, and sluggish demand from industrialised and emerging markets. Thermal coal, or hard coal, is used primarily to generate power. It is traded globally and shipped by sea.

 

Many analysts have said oversupply is affecting coal markets, but pinning down the numbers can be difficult due to different ways of calculating demand, production rates and the quality of available data.

 

Traders and analysts estimate the oversupply in a range of 7-million to 12-million tonnes, of a volume of trade in hard coal that will reach almost 1-billion tonnes this year.

 

"Each analyst has a different way of counting, and there are many gradations of coal quality, so forcing everything into one table has its limitations," said Société Générale energy analyst Paolo Coghe.

 

While exact numbers are hard to come by, analysts say extra coal will remain a problem in 2015 and 2016. Société Générale sees oversupply falling to about 7-million tonnes next year and 5-million in 2016 as Chinese and Indian demand strengthens and soaks up more supply.

 

Global demand growth has been slowing. The International Energy Agency has reduced its forecast for average coal demand growth to 2018 to 2.3% a year from 2.6%. In Europe and North America, coal consumption is falling as natural gas and renewables eat into coal’s share of power generation and as energy efficiency reduces the overall need to burn coal.

 

In Asia, demand growth is slowing. In China, slowing economic growth is adding to political pressures on businesses to use more natural gas than coal ( the dirtiest fuel for electricity generation) due to cho-king pollution in the biggest cities.

 

Overall Asian demand, however, could pick up slightly next year and start eating into oversupply. Also, at some point, supply will fall as loss-making coal mines shut.

 

Some coal producers are already unprofitable at current pricing levels and are having to cut production rates. The vital question is how cheaply others can offer their supplies before deciding to pull back.

 

"We have to expect at some point the low (coal) price will take out capacity. We are getting close to where Colombian prices are, which is the cheapest option at the moment," UK power utility Drax’ s head of energy management Ian Foy said. Most analysts say Colombia can export coal profitably at prices of about $65 a tonne.

 

 

Source: Reuters