Entering 2015 amid a backdrop of collapsing energy prices and generally falling commodity prices, below-trend economic growth and a strengthening US dollar, Gresswell said India was the one bright spot in an otherwise tough global thermal coal market, but the Asia Pacific region is an awakening giant.

Australian producers have received some relief in recent months with the falling Aussie dollar, which has dropped from $US0.95 in June to around $US0.81 at present, helping offset weaker thermal coal prices.

HDR expects Australian exports to increase further as there are also a number of mine expansions and new mines coming online this year.

However, Greswell said that relative to other producers, Indonesia probably benefits most from lower oil prices which feed into diesel costs, which we estimate to be 25-30% of production and transport costs across the sector.

“Combined with a weakening rupiah, we expect Indonesian exports to bounce back in 2015; however the upside will be limited due to higher domestic demand for coal and the possible implementation of a higher royalty regime,” Gresswell said.

Across the region, he said most countries were developing new coal-fired power generation assets, with Malaysia, the Philippines and Bangladesh all commissioning units in 2015 – all of which will result in a steady rise in imports.

However, Gresswell said the mid to long-term demand outlook for thermal coal across Asia is “compelling”.

“Based on HDR bottom-up forecasts, new Asian coal-fired capacity from 2014-18 will be around 45 gigawatts, or 9GW per annum – excluding China and India,” Gresswell said.

“This equates to approximately 30 million tonnes of additional coal requirements per annum to 2018.

“With domestic demand increasing in Indonesia, mine closures in the USA and the high cost of production in Australia, HDR forecasts a potential thermal coal supply shortfall from 2016 onwards.”

The economic growth of India, a major player in the demand side of the equation, is expected to recover into this year as inflation falls and new Prime Minister Narendra Modi starts implementing his reform agenda.

Gresswell said the new-build program of coal-fired generation continues unabated in India, and efforts to restructure the coal sector being met with significant opposition, citing the recent Coal India strikes last month against government moves to open up the industry to private firms.

“The weaker international prices also make imports more attractive, and we forecast a strong increase in Indian import volumes in 2015,” Gresswell said of India’s thermal coal market.

Regarding China, Gresswell said the Asian giant’s weakening import demand in H2 2014 exacerbated the weak fundamentals, as the government directed key importers to reduce volumes, introduced an import tax and more recently imposed restrictions on trace elements of imported coals.

“Although the figures improved in December, the rapidly changing regulatory landscape and lack of clarity regarding these announcements has left a large degree of ambiguity over China’s likely import levels in 2015,” he said.

“At this stage, however, we think it is unlikely volumes will increase over 2014.”

All eyes are on Japan’s restart of some nuclear units for the first time since the Fukushima disaster which will likely push aside oil and gas in the power generation “merit of order” as they are the most expensive fuels.

Yet Gresswell said HDR Salva also expected that some coal units – which had been operating at very high utilisation rates in recent years due to the nukes being offline – to also come offline for maintenance, which could lead to a slight easing in thermal coal import volumes this year.

Across the Sea of Japan, the first units of a massive coal-fired capacity expansion come online in Korea in 2015, which will result in a modest increase in import demand for 2015. Gresswell said this would accelerate next year and beyond.

In the US, the domestic coal market was still under pressure from lower gas prices, pushed down by strong supply and weak oil prices.

“The challenge is compounded for US coal producers as the strong US dollar is making them less competitive in international markets,” Gresswell said.

“We expect US exports to continue falling in 2015.”