International COAL MARKET Trends

7/27/2019 International COAL MARKET Trends

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Coal Supply-Demand andPrice Trend

Atsuo Sagawa, Chief Researcher

The Institute of Energy Economics, J apan

Coal Group, Strategy and Industry Research Unit

February 4 (Monday), 2008

IEEJ : May 2008


2/17

2

Global Consumption of Coal

Note: Figures for 2006 are estimated.Source: IEA, "Coal Information 2007"

Coal demand has increased since 2002, particularly in Asia. Global coal consumption in 2006 was6.26 billion tons (5.34 billion tons excluding brown coal).

Up to 2030, coal consumption is expected to grow at the annual rate of 2.1%, driven by the growthof demand especially in Asia and the increasing demand for coal in the power generation sector.

The largest growth in coal consumption is expected in China and India, followed by South Korea,

Taiwan and other Southeast Asian countries.

Source: EIA, "International Energy Outlook 2007"

Trend of coal consumption by area Outlook for coal consumption by area(in reference case)

1,037 1,033 1,0491,059

1,0841,107

1,0921,298 1,292 1,279

1,3221,314

1,2991,341

2,080(44.9%)

2,097(45.2%)

2,252(47.0%)

2,549(49.4%)

2,940(52.7%)

3,189(54.7%)

3,596(57.4%)

5,155

6,261

4,630 4,638 4,790

5,577 5,834

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

'00 '01 '02 '03 '04 '05 '06*

(million tons)

Central/South Americaand Middle East

Africa

Europe andFormer USSR

North America

Asia and Oceania

1,073

1,181

1,263

1,355

1,551

1,728

1,330

1,377

1,400

1,409

1,393

1,384

2,894(52.3%)

3,688(56.3%)

4,275(58.8%)

4,882(61.0%)

5,429(62.0%)

6,001(63.1%)

7,271

5,533

6,550

7,999

8,752

9,511

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

'04 '10 '15 '20 '25 '30

(million tons)

IEEJ : May 2008


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3

Global Trading of Coal

Note: Figures for 2006 are estimated.Source: IEA "Coal Information 2007"

Trade volume has been increasing as demand has grown. Trade volume is expected to grow further, particularly in Asia.

Trend of export volume and export ratio Outlook for coal trade(in reference case)

Source: EIA "International Energy Outlook 2007"

289382

476

175

187

173129

167

198

58

50

57

56

67

116

880

523 636

765

206

244

290

730

1,055

0

200

400

600

800

1,000

2005 2015 2030

(m illion tons)

Am erica

Europe

AsiaSteamingcoal

Metallurgicalcoal

Import area:

139

139

137

126

146

158

152

156

178

182

198

192

193

181

191

190

189

194

181

184

189

201

189

199

203

222

222

187

196

193 2

12

209

306

296

290

258

2613

04

327

349

369

365 4

26 4

67

469 5

105

44 56

6593

125

133

137

143

162

0

100

200

300

400

500

600

700

800

900

'80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06*

Coalexports(milliontons

0

5

10

15

20

25

30

35

40

45

Coalexportratio(%)

Exports (metallurgical coal) Exports (steaming coal)

Export/production ratio (all coal) Export/production ratio (metallurgical coal)Export/production ratio (steaming coal)

IEEJ : May 2008


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4

Major Coal Exporters and Importers of the World

Note: Figures for 2006 are estimated. Source: IEA "Coal Information 2007"

0

50

100

150

200

250

'80 '82 '84 '86 '88'90 '92 '94 '96'98 '00 '02 '04'06*

(million tons)

Australia

Indonesia

Russia

South Africa

China

Colombia

UnitedStates

Canada

Kazakhstan

Vietnam

Poland

Trend of export volume by country Trend of import volume by country

0

50

100

150

200

250

'80

'82

'84

'86

'88

'90

'92

'94

'96

'98

'00

'02

'04

'06

*

(million tons)

Japan

South Korea

Taiwan

Britain

Germany

India

China

UnitedStates

Russia

IEEJ : May 2008


5/17

5

Trend of Steaming Coal Prices(Australian and South African Coal Prices)

Prices have been rising since June 2003 and reached historical highs in July 2004. Subsequently, prices fell as supply capacity was expanded to meet the demand particularly

in Australia and Indonesia, and fluctuated in the 40-50 dollar/ton range. However, prices began to rise again sharply from June 2007.

Notes: Barlow Jonker Index : a spot price for steaming coal, FOB Newcastle, Australia.RB Weekly Index : a spot price for steaming coal, FOB Richards Bay, South Africa.

Source: Barlow Jonker, "Coal Fax"; Global Coal data; etc.

10

20

30

40

50

60

70

80

90

100

110

January-03

April-03

July-03

October-03

January-04

April-04

July-04

October-04

January-05

April-05

July-05

October-05

January-06

April-06

July-06

October-06

January-07

April-07

July-07

October-07

January-08

US$/t

Barlow Jonker Index RB W eekly Index Annual contract price of Australian steam ing coal for Japan

IEEJ : May 2008


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6

Trend of Metallurgical Coal (hard Coking Coal) Prices

Metallurgical coal prices rose sharply in 2005 (2004 in the case of Chinese coal). Prices fell in the two subsequent years as the supply capacity was expanded in

response to high prices. However, fears of a supply shortage grew in the market in 2007, and it was reported

that the spot price for export to India exceeded the price in 2005.

Source: Barlow Jonker "Australian Coal Report" and "China Coal Report" ; etc.

30.00

40.00

50.00

60.00

70.00

80.00

90.00

100.00

110.00

120.00

130.00

January-0

3

Apri

l-03

Ju

ly-0

3

Oc

tober-

03

January-0

4

Apri

l-04

Ju

ly-0

4

Oc

tober-

04

January-0

5

Apri

l-05

Ju

ly-0

5

Oc

tober-

05

January-0

6

Apri

l-06

Ju

ly-0

6

Oc

tober-

06

January-0

7

Apri

l-07

Ju

ly-0

7

Oc

tober-

07

January-0

8

(US$/t)

From Queensland, Australia, to Japan From Australia to Europe From China Annual contract for sales to Japan

IEEJ : May 2008


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Major Drivers of Coal Price Rising (Demand Side)

Growth in supply capacity unable to match growth in demand Growth of demand and imports by Asia Growth of demand in existing importers (such as South Korea, Taiwan and Japan) Growth of imports by new importers (such as India and China)

Note: Figures for 2006 are estimated.Source: IEA "Coal Information 2007"

Global imports of coal(year-on-year increment)

Global consumption of coal(year-on-year increment)

-50

0

50100

150

200

250

300

350400

450

500

2001 2002 2003 2004 2005 2006

Others

Asia

Global

(million tons)

-20

-10

0

10

20

30

40

50

60

70

2001 2002 2003 2004 2005 2006

Others

Asia

Global

(million tons)

IEEJ : May 2008


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South Korea: Imports in 2007 amounted to 88.3 million tons (up 8.6 million tons from the previous

year): steaming coal 65.6 million tons (up 6.6 million tons) and metallurgical coal 17.3million tons (up 1.7 million tons).

Taiwan: Imports in 2007 amounted to 65.2 million tons (up 3.0 million tons from the previous

year): steaming coal 60.3 million tons (up 3.1 million tons) and metallurgical coal 4.8million tons (down 0.05 million tons).

Source:Korea Trade Statistics

Coal imports by South Korea(year-on-year increment)

Coal imports by Taiwan

(year-on-year increment)

Source:Bureau of Energy, Ministry of Economic Affairs

-1

0

1

2

3

4

5

6

7

2001 2002 2003 2004 2005 2006 2007

(million tons)

AnthraciteSteaming coalMetallurgical coalTotal

-3

-2

-1

0

1

2

34

5

6

7

8

9

2001 2002 2003 2004 2005 2006 2007

(million tons)

AnthraciteSteaming coalMetallurgical coalTotal

IEEJ : May 2008


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9


China: Imports in 2007 amounted to 51.0 million tons (up 12.8 million tons from the previous year):

steaming coal 13.3 million tons (up 2.8 million tons), metallurgical coal 6.2 million tons (up 1.6 milliontons) and anthracite 28.4 million tons (up 5.8 million tons).

India:

Imports in 2006 amounted to 40.5 million tons (up 1.9 million tons from the previous year): steaming coal21.9 million tons (up 0.2 million tons) and metallurgical coal 18.6 million tons (up 1.7 million tons).Imports in 2007 from January to June amounted to 24.8 million tons (up 4.6 million tons).India increased its imports from Indonesia (steaming coal), Australia (metallurgical coal) and South

Africa (steaming coal).

Coal imports by China(year-on-year increment)

Coal imports by India(year-on-year increment)

Source: TEX report, etc.

Note: The import volume in 2007 is compared with 2006 by thesum of from January to June.

Source: IEA, "Coal Information 2007" and TEX report

-3

0

3

6

9

12

15

2001 2002 2003 2004 2005 2006 2007

(million tons)

Anthracite

Steaming coal

Metallurgical coal

Total

-2

0

2

4

6

8

10

12

2001 2002 2003 2004 2005 2006 2007

(million tons)

Steaming coal

Metallurgical coal

Total

IEEJ : May 2008


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Japan: Imports in 2007 amounted to 186.5 million tons (up 9.3 million tons from the previous

year): steaming coal 95.2 million tons (up 8.5 million tons), metallurgical coal 85.8million tons (up 1.2 million tons) and anthracite 5.5 million tons (down 0.4 million tons).

Source: Japan Trade Statistics

Coal imports by Japan (year-on-year increment)

-6

-4

-2

0

2

4

6

8

10

12

14

2001 2002 2003 2004 2005 2006 2007

(million tons) Anthracite

Steaming coal

Metallurgical coal

Total

IEEJ : May 2008


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Major Drivers of Coal Price Rising (Supply Side)

Growth in supply capacity unable to match growth in demand Bottleneck of transportation infrastructure in Australia (export infrastructure capacity unable to meet

growth in export demand): Extraordinarily ship congestion at Australian ports due to the above issue Controlling the export volume to solve the ship congestion

Australia unable to increase supply in the face of rising export demand + rising FRT prices: Concentration of coal export demand in Indonesia Indonesia reducing export volume for spot sales (inability to respond flexibly to demand)

Ship congestion at Australian ports

0

10

20

30

40

50

60

70

80

'06/4/21

'06/5/19

'06/6/16

'06/7/14

'06/8/11

'06/9/8

'06/10/6

'06/11/3

'06/12/1

'06/12/29

'07/1/26

'07/2/23

'07/3/23

'07/4/20

'07/5/18

'07/6/22

'07/7/20

'07/8/17

'07/9/14

'07/10/12

'07/11/9

'07/12/7

'08/1/4

Number of ships

Newcastle

Dalrymple Bay

IEEJ : May 2008


12/17

12


Growth in supply capacity unable to match growth in demand

China reducing exports & increasing imports due to:- Growth in domestic demand- Domestic market price > International market price

Net export volume decreasing since 2004

- China depends totally on imports for metallurgical coal and anthracite.

Source: Balow Jonker, China Coal Report & Coal Fax ; etc.

Trend of net coal exports by China

Trend of Chinese steaming coal price

20

30

40

50

60

70

80

90

100

03 04 05 06 07 08

US$/

Chinese steaming coal price for domestic market

(Datong coal reference price, FOB Qinhuangdao)

Australian steaming coal spot price

Chinese steaming coal for export to Japan

(annual contract price for L/T trade))

-30

0

30

60

90

2000 2001 2002 2003 2004 2005 2006 2007

(million tons) AnthraciteSteaming coalMetallurgical coalTotal

Source: TEX report, etc.

IEEJ : May 2008


13/17

30.00

40.00

50.00

60.00

70.00

80.00

90.00

100.00

Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec.

(US$/t)

2004

2007

2006

2005

2008

13


Drop in production due to natural disaster - Rainstorm in New South Wales, Australia (early June)

- Delayed lifting of rainy season in Indonesia- Heavy rain in South Kalimantan (late July)

Drop in production due to accidents and troublesTrend of Australian steaming coal spot price (Barlow Jonker Index)

Rainstorm in NSW, longer rainyseason in Indonesia, etc.

Australia controlling exports to solve theship congestion at ports, heavy rain inSouth Kalimantan, etc.

Early securing of coal supplyfor winter demand season inthe tight coal market

Source: Barlow Jonker, "Coal Fax"

IEEJ : May 2008


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Recent Coal Market Situation

Successive occurrence of events that may lead to higher prices: Tighter coal supply-demand in China in winter (demand season) Higher electricity demand in winter Coal shortage in domestic market Additional impacts from heavy snow in mid-south China

Suspension of coal exports during the Chinese new year celebration and during thesession of the National Peoples Congress and the Chinese Peoples Political

Consultative Conference

Heavy rain in Queensland State, Australia (mid January 2008) Some coal mines declared force majeure.

Trend of Chinese steaming coal price Trend of Australian steaming coalspot price

Source: Balow Jonker, China Coal Report & Coal Fax, etc.

20

30

40

50

60

70

80

90

100

03 04 05 06 07 08

US$/

Chinese steaming coal price for domestic market

(Datong coal reference price, FOB Qinhuangdao)

Australian steaming coal spot price

Chinese steaming coal for export to Japan (annual

contract price for L/T trade)

30.00

40.00

50.00

60.00

70.00

80.00

90.00

100.00

Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec.

(US$/t)

2004

2007

2006

2005

2008

IEEJ : May 2008


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15

Coal Trade in 2008 (Comparison with 2007)

steaming coal Metallurgical coal

Source: abare, Australian Commodities, December quarter

-5.6

8.3

-0.5

4.6

7.5

0.3

1.7

0.6

3.4

0.91.8

1.1

-0.1

-12.3

3.5

8.2

-15

-10

-5

0

5

10

15

20

2007 estimated 2008 forecast

(million tons)

OthercountriesEU

Brazil

Japan

Taiwan and

South KoreaIndia

China

Trade

volume

11.4

6.0

3.0

4.0

3.5

2.0

4.4

5.0

1.7

1.5

4.9

5.2

-3.6

5.9

-0.8

2.7

24.5

32.3

-5

0

5

10

15

20

25

30

35

2007 estimated 2008 forecast

(million tons) Other

regions

Europe

Other Asian

countries

Japan

South Korea

Taiwan

India

China

Trade

volume

IEEJ : May 2008


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Outlook for the Asian Market for 2008 and Subsequent Years

Tight supply-demand for coal will continue. Pay attention to:

Growth in demand9 In South Korea, coal-fired power plants commissioned in 2007 will begin full-scale

operation. Moreover, seven new coal-fired power plants will start operation between

the end of 2007 and 2009. Steaming coal consumption will continue to grow in 2008 and subsequent years.

9 India and Southeast Asian countries will increase their demand and imports of coal.

9 Taiwan closed three old coal-fired power plants in 2007 and then coal consumptionby Taiwan Power Company will decrease in 2008 (outputs from coal-fired powerclosed will be covered by new LNG-fired power plant).

From 2012, however, new coal-fired power plants are scheduled to start up. Chinas domestic demand and import/export

9 Domestic demand will continue to grow, driven mainly by power generation demand. Tight supply-demand will continue at least several years.

9 Import/export volume will depend on supply-demand situation and the coal pricetrend in the China domestic market and international market, but:

9 Imports basically will probably continue to increase to meet the demand in thecoastal area.

9 Exports will probably decrease or remain level.

IEEJ : May 2008


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Outlook for the Asian Market for 2008 and Subsequent Years

Tight supply-demand for coal will continue. Pay attention to:

Export potential of Australia

9 Even though export infrastructure is being expanded, growth in capacitywill not catch up with growth in demand at least in 2008.

9 If expansion projects go well, export capacity is expected to match thedemand in around 2010.

9 Suppliers are capable of increasing production to meet growth in demand.

Export potential of Indonesia9 Domestic demand is growing, driven mainly by the demand for coal in the

power generation sector.

Annual export volume will hit a peak after 2010.

IEEJ : May 2008

Contact: [email protected]

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International COAL MARKET Trends