<article><p>The seaborne thermal coal market is unlikely to recover in 2015 because of continuing oversupply in the face of weak Chinese demand, according to Saudi research centre Kapsarc. </p><p>The centre put forward two scenarios for global thermal coal demand in 2015 at a conference in Dubai this week. Both scenarios see total global supply continuing to outstrip demand, which will serve to keep a lid on prices. </p><p>Under a flat China scenario — where Chinese demand for thermal coal remains at 230mn t in 2015, the same as the expected total for this year — world demand for seaborne coal will reach 1.1bn t in 2015, 11mn t less than world seaborne supply. Under a coastal drop scenario — where Chinese demand drops by 20mn t on the year in 2015 — global supply outstrips demand by 31mn t.</p><p>Chinese demand for seaborne coal will ultimately depend on the country's domestic policies, Kapsarc says. But given that the country has imposed a 6pc import tax on non-coking bituminous coal from non-Asean countries and that higher-quality Indonesian coal grades have lost competitiveness against equivalent Chinese coal, the coastal drop scenario appears more likely. </p><p>The price of Indonesian 5,500 kcal/kg coal delivered to China was at an average discount of just 23¢/t to Chinese domestic supply in January-October, around $3.30/t less than the average discount over the same period last year. </p><p>China's second-largest supplier, Australia, will become exempt from a 6pc import tax within two years under a recently signed free trade agreement, but the exemption is unlikely to be implemented soon enough to prevent Chinese demand dropping in 2015. </p><p>The centre predicts that Indian demand will remain robust and will grow by around 10mn t to 165mn t in 2015, but this will not be enough to correct the supply-demand imbalance in the market. </p><p>Modest demand growth elsewhere — for example in South Korea where demand is expected to grow by 3mn t in 2015 and in Asean countries where demand is likely to grow by 9mn t — will help offset a predicted 17mn t growth in global supply. But the supply glut is likely to continue, even if Chinese demand remains unchanged.</p><p>ivb/wj </p><p><br> Send comments to <a href="mailto:feedback@argusmedia.com" target="_parent"> feedback@argusmedia.com </a></p><p><u><a href="http://www.argusmedia.com/Info/General/News" target="_TOP"> Request more information </a></u> about Argus' energy and commodity news, data and analysis services. </p><p><i> Copyright © 2014 Argus Media Ltd - <a href="http://www.argusmedia.com/" target="_TOP"> www.argusmedia.com </a> - All rights reserved. </i></p></article>