For the first time since 1982, the export coal market is experiencing an extended period of tight supply and demand, according to AME. This is because of the concentration of ownership of the coal supply industry of the last two years which has resulted in four producers - Rio Tinto, BHP Billiton, Glencore and Anglo American – now supplying 37% of the total traded coal market.
As the industry consolidation beds down AME predicts a steady industry balance that will lead to a more stable market and healthy prices
The shift in focus of the bigger producers towards achieving shareholder returns will impact on how investment decisions are made. New coal mine projects will need to be financially robust, assured of a market, and highly likely to provide a healthy return on investment. AME expects future investment decisions to be more appropriately timed, eliminating the extremes of over or under capacity.
Demand for internationally traded coal grew by 7% in 2000 to 588Mt and is expected to reach 599Mt this year, with AME predicting steady growth between 2000 and 2005.
Thermal coal demand surged 9% from 1999 to 2000 on the back of strong demand in the Asian electricity sector with coal-fired power stations continuing to be built at an impressive rate, despite some winding back of construction schedules. Coal remains clearly the lowest-cost fossil fuel for electricity generation in those energy-importing countries without access to pipeline natural gas.
Asian thermal coal demand will continue to enjoy good growth between 2000 and 2005. Despite the “dash to gas” in Europe and only marginal consumption growth, European thermal coal imports will continue to rise as domestic coal production declines.
Coking coal demand dropped to 186Mt in 1999, the same level as 1995, but rebounded to 193Mt in 2000 on the strength of world steel production surging to a record 847Mt last year. AME estimates that overall steel production will grow by 1.3% a year over the next five years. Blast furnace iron production, which drives the coking coal market, will not grow as rapidly. Thus only modest increases will occur in coking coal demand.
On the supply side, China remains a wildcard in traded coal. China’s exports have grown to a level where they have a substantial influence on market dynamics. In view of the rapid rise in thermal coal spot prices due to tightening supply through 2000, if China had not pumped an extra 17Mt into the international thermal coal market, the supply situation would have become very acute. With an export target this year of 63Mt, China is set to capture over 10% of international seaborne coal trade, according to AME.
Looking ahead, AME predicts that over the next four years, Australia will cement its position as the world’s largest coal exporter, ahead of South Africa and China. Indonesia overtook the US last year to become the world’s fourth largest exporter of coal, although industrial unrest and uncertainty over new legislation on regional autonomy and fiscal decentralisation have caused further disquiet among foreign investors.
Colombia’s thermal coal exports are expected to grow rapidly. It is a low cost producer and only a worsening of political and internal security issues can now stand in the way of this country almost doubling its coal exports within the next decade. Coal remains the cheapest major energy source with its position enhanced by continued reduction in real mining costs. Australia has led the way – achieving the biggest cost savings by tackling the difficult industrial relations area while improving efficiency and streamlining management.
AME predicts that the Reference Price for Australia-Japan premium hard coking coal will increase again in 2002 to US$45 per tonne and that semi-soft coking coal pricing will remain at US$36.75/t with thermal coal also remaining constant in 2002 at US$34.50/t.
