Coal market recovery unlikely in 2015

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.

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.

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.

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.

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.

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.

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.

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.

ivb/wj

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