The seaborne thermal coal market may be heavily oversupplied and prices continuing to suffer, but Australian producers are doing their best to capitalise on India’s surging demand.

The Salva Report’s Thermal Market Summary for the first half of 2013 issued August 1 said the rise of Australia and the continuing surge of Indonesia’s output is squeezing the United States out of thermal coal markets.

After a strong Q1, where exports grew by 2.1 million tonnes year-on-year, the Salva Report noted that the US’ Q2 trade volumes fell by 2.5Mt over April and May.

Indonesia increased exports in the first half of 2013 by almost 20Mt to 204Mt and is heading, as the Salva Report predicted in its Q1 update, to well over 400Mt for 2013.

Addressing industry professionals in Brisbane in June, Salva Report’s chief analyst Mark Gresswell said that the supply surge from 2012 has continued but is now concentrated in Australia and Indonesia.

“This new supply is a result of the booming prices of 2008, which resulted in an investment surge in mines and infrastructure that is coming online now,” he said.

Australia has become so prominent in the global supply picture that “growth in volumes is becoming an India-China story on demand and an Indonesia-Australia story on supply”.

Salva Report’s H1 Thermal Market Summary noted that Australian producers are “pushing out the tonnes”, with spare rail and port capacity and take or pay contracts “helping” this growth, as well as a push to reduce average costs by increasing volumes.

“This is making it difficult for the exporters who are more marginal into Asia – Colombia, South Africa and the USA, with all three experiencing lower exports year to date,” the report said.

“Weaker sales into Asia [from the US] have been exacerbated by stronger competition into European markets by Colombian, South African and Russian supply,” the Salva Report said.

“Currency depreciation in Australia and Indonesia has only made the situation for US exporters worse, despite significant (>100Mt) supply cuts domestically over the past 18 months.”

“While export growth slowed in Q2, Australian thermal exports continue to grow as producers look to reduce their dollar per tonne costs through exporting greater volumes. Take-or-pay contracts also have been important in pushing volumes higher.”

While both Colombia and South Africa recovered in the second quarter from a “disastrous” first quarter, albeit with a minimal year-on-year growth, “the US has done the opposite as the tyranny of distance and adverse relative currency movements take their toll”, the report added.

However Rodney Ruston, chief executive of ASX-listed junior County Coal, warned punters not to count the US thermal coal industry out of the Asian market just yet.

Ruston, whose company has 730Mt of resources in the Powder River Basin in Wyoming, told ILN that while the mines on the east coast of the US that have exported, and will continue to export, quality coal to Europe, he expects the global over-supply situation to turn around within five years, leaving the door open for the US to export into Asia.

“There are already projects being pulled off the market, and my forecast is that within the next two years there will be a number of mines that will close because prices will stay depressed; we’ll go through another cycle and within a three to four year time frame the market will improve and prices will go up,” he said.

“This is a normal resource cycle. The resource industry has the absolute ability to shoot itself in the foot more than anyone else. When prices go up, we all rush out and build more mines and flood the market so prices go down again; rather than control ourselves and say ‘let’s keep the market slightly undersupplied and we’ll all make a bunch of money’.”

Ruston said Australian coal is getting more expensive because it’s going further inland, helping the US’ competitiveness.

“Certainly the Asian markets are very keen on diversifying their supply, regardless of what they say, and on sourcing coal off the west coast of North America because of increasing costs in Australia,” he said, adding that the carbon tax has also hurt Australia’s risk profile.

“The Bowen Basin is in decline so companies are moving into the Surat Basin and the Galilee Basin which are a lot further inland and will make US coal much more competitive.

“We can produce coal in the Powder River Basin for $US5-10 a tonne. You can’t do that in Australia.

“There are people who think coal is dead and we’re going to run the world on wind [power], and that is not happening. In fact, the use of coal-fired power generation is still growing. Although uranium and renewables are currently the fastest growth, there are still coal-fired power stations being built across China and a number being built in Taiwan.

“So growth in global sea-traded coal will continue and some of that will come off the west coast of North America.”