 |
Crops |
|
Livestock |
|
Energy |
|
Metals |
|
Article |
|
Data |
|
| Thermal coal |
| Outlook to 2013-14 |
|
Kate Penney and Robert New |
|
| In 2008, spot prices for Newcastle thermal coal exports
averaged around US$129 a tonne, 95 per cent higher than in 2007. The large increase reflected a dramatic
rise in prices in the first half of 2008 as a result of supply disruptions,
strong demand growth and high energy prices generally. Spot prices subsequently
declined in late 2008, corresponding to a decline in energy prices, weaker
global economic growth and a stronger US dollar. Newcastle spot prices picked up slightly in early 2009. Despite this, spot prices remain well below contract prices negotiated for the Japanese Fiscal Year 2008 (JFY, April-March). |
| Contract prices to decline significantly in JFY 2009... |
| The majority of Australia’s thermal coal trade
is conducted on a contract basis, the terms of which are set until the
end of March 2009. Thermal coal contract prices for JFY 2008 were settled
at US$125 a tonne, an increase of 125 per cent on the previous year.
Contract prices are likely to fall substantially for JFY 2009 because of the wide gap between spot and contract prices which has developed over the past six months; forecast sharply lower global demand; continued growth in world supply; and an assumed depreciation of the Australian dollar. |
| ...but to recover over the medium term |
While economic growth is assumed to begin recovering
in late 2009 and early 2010, it will take time for demand growth to
regain pace. Given that contract prices for JFY 2010 will be negotiated
in early 2010, the potential for slow growth in demand is expected
to result in further downward pressure on thermal coal prices. However,
from JFY 2011 onward, thermal coal contract prices are projected to
increase when economic growth prospects improve, but will remain below
the JFY 2008 contract price. Strong demand growth from developing Asia
is projected with many countries investing heavily in new coal-fired
power generation capacity. However, the effect of climate change policies
in some developed economies and uncertainty surrounding the global
economic outlook present risks to these projections. |
| China’s imports to rise steadily... |
| China’s imports of thermal coal are estimated
to have declined by 18 per cent in 2008 to 34 million tonnes. Imports
are forecast to decline marginally in 2009 because of slower domestic
electricity demand growth. However, the competitiveness of coal imports
into China has increased owing to lower international coal prices and
freight rates while growth in domestic production is likely to ease,
presenting an upside risk to this forecast. Industry use represents a significant proportion of China’s total electricity consumption. The current economic slowdown and the subsequent effect on the demand for manufactured products in the traded sector are expected to have a dampening effect on the demand for electricity in the short term. The Chinese Government has committed significant investment in infrastructure through its US$586 billion stimulus package. These projects will require large volumes of energy intensive products such as steel and cement. A combination of rising electricity demand to support economic growth and ongoing urbanisation; domestic supply factors and government policies are expected to result in continued growth in China’s imports of thermal coal over the medium term. China’s imports of thermal coal are projected to increase at an average annual rate of 12 per cent a year to 65 million tonnes in 2014. China’s coal production is projected to rise rapidly over the outlook period, underpinned by plans to increase production by up to 30 per cent on 2007 levels (around 2.5 billion tonnes) by 2015. Over the medium term, China’s coal industry is expected to be characterised by increased consolidation. The Chinese Government has announced plans to reduce the number of small scale mines with low extraction efficiency and poor safety records. It is intended these mines will be subsumed by larger state owned mining companies, as the government aims to increase state ownership from 62 per cent in 2006 to 73 per cent in 2010. Transportation bottlenecks are viewed as a major challenge to the continued expansion of the coal industry in China and are expected to contribute to a rise in import demand. The major consuming regions are located along the south coast, while an increasing proportion of China’s coal production is located in the northern regions with two-thirds of China’s coal resources located in four provinces – western Xinjiang, Nei Menggu (Inner Mongolia), Shanxi and Shaanxi. This has significant implications for the future of coal production and for transport infrastructure requirements to extract and deliver these resources. The sustained use of domestic resources will hinge on the development of sufficient infrastructure to ease supply bottlenecks. The west to east Daqin and north to south Shuohuang lines are the only two railways connecting coalfields and seaports. The Chinese Government has announced plans to construct a 1000 kilometre rail line to transport up to 200 million tonnes of coal a year from Inner Mongolia to Hebei province in 2009. Over the period to 2012, more than 170 billion yuan (US$24.9 billion) will be invested in building rail capacity in Inner Mongolia , increasing railway length to more than 13 000 kilometres (from 6800 kilometres at the end of 2008). |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ...while exports contract |
| In early 2009, the Chinese Government released the
first tranche of export licences for 26 million tonnes of coal (23.7
million tonnes thermal coal and 2.3 million tonnes metallurgical coal).
The Chinese Government has not announced the total volume of licences
to be released in 2009, but exports are forecast to total 41 million
tonnes. China’s exports of thermal coal are projected to decline steadily over the outlook period as the government releases fewer export licences to redirect coal to the domestic market. In 2014, China’s thermal coal exports are projected to be 30 million tonnes, compared with an estimated 42 million tonnes in 2008. |
| Strong growth projected in India... |
| India is projected to exhibit strong growth in thermal
coal import demand over the medium term, increasing from an estimated
34 million tonnes in 2008 to 80 million tonnes in 2014. Underpinning
this increase is the Indian Government’s plans to double coal-fired
electricity generation capacity by 2017 from an operational capacity
of 76 229 megawatts in June 2008. To achieve this, nine ultra mega power stations with a capacity of 4000 megawatts each are planned for construction. The plants will use supercritical technology to improve the conversion efficiency of fuel to electric power, resulting in savings in the volume of coal required and reducing the volume of emissions released. The plants will require less coal to generate the same amount of output as a conventional plant and five of the plants will use imported fuel with a lower sulphur and ash content than domestic coal. Each plant is expected to consume up to 15 million tonnes of coal a year. The Asian Development Bank has executed a loan agreement with Coastal Gujarat Power Limited, a wholly owned subsidiary of the Tata Power Company, to build and operate the first ultra mega power project, Mundra in Gujarat. The project is scheduled to commence operation in 2012 and will use imported coal as fuel. In the period up to 2012, growth in India’s thermal coal imports will be underpinned by the commissioning of smaller coal-fired power stations to support robust economic growth. |
| ...but growth to be muted in Japan, the Republic of Korea and the European Union |
| Growth in Japanese thermal coal demand is projected
to decline by an average of 1 per cent a year over the outlook period
to reach 127 million tonnes in 2014. Japan has limited plans for additions
to coal-fired power generation over the medium term owing to policies
aimed at reducing carbon emissions. If an emissions trading scheme was
introduced, there would be adverse effects on Japan’s coal demand.
Although Japan’s coal-fired power stations operated at capacity
in 2008, utilisation is projected to decline over the outlook period
as alternative power generation capacity, including nuclear and gas-fired
power plants, is either restarted or commissioned. Korean imports of thermal coal are estimated to have increased by 12 per cent in 2008. In 2009, thermal coal imports are forecast to decline by 6 per cent as the economic contraction is expected to dampen the demand for electricity, particularly in the industrial sector. In line with the Republic of Korea’s third basic plan for long-term energy supply and demand, coal-fired electricity generation capacity is expected to increase by 7000 megawatts (32 per cent of 2006 capacity) between 2007 and 2013. However, by the end of 2009, 5200 megawatts of this capacity is expected to be installed. As a result, growth over the remainder of the outlook period is expected to remain subdued. Thermal coal imports into the European Union are projected to remain steady at around 180 million tonnes over the medium term. While the EU emissions trading scheme is expected to reduce the demand for thermal coal, declining production in Germany and Poland is expected to keep imports stable. In Germany, the Ost mine in Hamm (annual output 1.6 million tonnes) is scheduled to close in September 2010; followed by Ensdorf in 2012 (around 3.5 million tonnes a year) and the West mine (annual output of 3 million tonnes) in 2013. |
|
||||
thermal coal |
metallurgical coal |
total |
||
|
||||
| China Coal | 9.52 |
1.18 |
10.7 |
|
| Shenhua | 10.43 |
0.27 |
10.7 |
|
| Shanxi | 2.15 |
0.5 |
2.65 |
|
| Minmetals | 1.6 |
0.35 |
1.95 |
|
| Total | 23.7 |
2.3 |
26 |
|
|
||||
| project | state | capacity | fuel source | |
|
||||
| Mundra | Gujarat | 4 000 MW | imported coal | |
| Sasan | Madhya Pradesh | 4 000 MW | domestic coal | |
| Krishnapatnam | Andhra Pradesh | 4 000 MW | imported coal | |
| Tilaiya | Jharkhand | 4 000 MW | domestic coal | |
| Akaltara power | Chhattisgarh | 4 000 MW | domestic coal | |
| Tadri | Karnataka | 4 000 MW | imported coal | |
| Girye | Maharastra | 4 000 MW | imported coal | |
| Cheyyur | Tamil Nadu | 4 000 MW | imported coal | |
| Sundargarh | Orissa | 4 000 MW | domestic coal | |
| Global supply to remain constrained over the medium term |
| Over the outlook period, growing demand for thermal
coal is expected to be met by increased production in Indonesia, Australia,
Colombia and South Africa. While there are significant plans to expand
production and infrastructure capacity, there is the potential for supply
side constraints to persist over the medium term. In addition, the intention
of producers to expand production could be adversely affected by the
expected lower prices and the ability of some producers to obtain finance
in the short term. Growth in the volume of thermal coal exports in a number of countries is projected to decline over the medium term as domestic energy programs encourage domestic consumption. For example, The Vietnamese Government has stated its intention to become a net importer by 2012 and has started to limit exports. Similarly the rate of growth in exports from Indonesia will be determined partly by the domestic demand for coal. |
| Strong growth in Indonesia and Colombia |
| Thermal coal exports from Indonesia are projected to
grow at an average annual rate of 4 per cent to 250 million tonnes over the period to 2014. This reflects Indonesia’s low production costs and the ability to increase exports rapidly. For example, Bumi Resources has announced plans to expand production from its KPC and Arutmin mines from 53 million tonnes in 2008 to 111 million tonnes a year in 2012. These two mines produce up to 25 per cent of Indonesia’s total thermal coal exports and are expected to account for a large proportion of Indonesia’s export growth. A large share of Indonesia’s exports are expected to be destined for China and India. A risk to Indonesia’s export growth is the potential for a rapid increase in domestic demand. In late 2006, the Indonesian Government announced plans to build coal-fired electricity plants with a combined capacity of 10 000 megawatts electric by 2010 to meet growing power demand and replace the use of oil in power generation. The program centres on the construction of 10 large scale plants with more than 7000 megawatts of capacity to serve the Java-Bali grid. The fast tracked plants were intended to be operational in 2009 and 2010. However, delays and issues obtaining finance have stalled the development of these plants under the program. Over the medium term, significant investment is planned to expand production in Colombia. This reflects the relatively low cost of production and the strong demand for the high energy, low sulphur qualities of Colombian coal. Colombia’s exports of thermal coal are projected to increase at an average annual rate of 7 per cent over the outlook period to 102 million tonnes in 2014, underpinned by a number of expansions at large mines including Cerrejon and Drummond. |
| South African exports to rise steadily |
| After increasing slightly in 2008, South African exports
are forecast to increase marginally in 2009 and 2010 as lower domestic
demand stemming from the global economic downturn increases the availability
of coal for export following electricity shortages in early 2008. Over the medium term, South African exports have the potential to increase as new production and expansions to infrastructure capacity begins operation. Phase V of the Richard’s Bay Coal Terminal expansion, which will increase capacity by around 20 million tonnes to 90 million tonnes a year is scheduled for completion in 2009. In addition, BHP Billiton’s Klipspruit project (1.8 million tonnes a year expansion) and the Douglas-Middelburg Optimisation project (to sustain production at around 18.5 million tonnes a year) are scheduled to be completed in late 2009 and mid-2010, respectively. These expansions are expected to enable exports to grow at an annual average rate of 4 per cent to 84 million tonnes in 2014. |
| Australian exports to increase steadily |
| After increasing by 3 per cent in 2007-08, Australian
thermal coal exports are forecast to increase by 13 per cent in 2008-09
to 130 million tonnes. The completion of projects during 2008 and in
early 2009 – including Glendell (4.5 million tonnes a year); the
Dawson complex expansion (3.4 million tonnes); the Lidell washplant upgrade
(an expansion of 4.2 million tonnes) and Rocglen (1.5 million tonnes) – are
expected to support this increase. In addition, the relative resilience
of thermal coal prices compared with semi soft coal has supported the
transfer of semi soft coal to the thermal coal market toward the end
of 2008-09. Australian export earnings from thermal coal are forecast
to rise by 121 per cent to $18.5 billion in 2008-09 in line with higher
export volumes, relatively high contract prices and an assumed depreciation
of the Australian dollar. In 2009-10, exports of thermal coal are forecast to increase marginally to around 132 million tonnes. Increased production and export capacity following significant investment over the past few years is expected to be under utilised because of lower global demand for coal. Australian export earnings are forecast to fall by 28 per cent to $13.2 billion as higher export volumes are offset by lower contract prices. Strong global demand for coal will buoy prospects for the Australian coal industry and support an increase in export volumes over the outlook period. Rising thermal coal prices and the expectation of continued strength in global coal demand over the medium term have provided investors with an incentive to invest in new mining and infrastructure projects. However, the current slowing in economic growth and tight lending conditions have forced many producers to reassess plans which could result in a delay in the timing of new projects. There are a number of mining projects that are scheduled to start production over the medium term including Whitehaven’s Narrabri (1.5 million tonnes a year), Felix Resources’ Moolarben project (9 million tonnes a year) in 2010, Xstrata’s Mangoola project (10.5 million tonnes a year) in 2011 and Rio Tinto’s Clermont (12 million tonnes a year in 2012) and Mount Pleasant projects (8.5 million tonnes a year in 2013). In addition, Anglo American/Mitsui’s stage 2 development of Dawson South will increase capacity by 5 million tonnes a year, but is subject to secure financial backing for the capacity expansion of the Wiggins Island Coal Terminal at Gladstone. Australian exports of thermal coal are projected to increase at an average annual rate of 6 per cent to 164 million tonnes in 2013-14. Despite higher export volumes, lower assumed contract prices in the short term are expected to result in export earnings falling to a low of $11.9 billion (in 2008-09 dollars) in 2010-11. However, the combination of an assumed strengthening in contract prices from JFY 2011 and rising export volumes is projected to result in Australian export earnings reaching $16 billion (in 2008-09 dollars) by 2013-14. |
|
||||||||||||||||||||
unit |
2007 |
2008 |
2009 |
f |
2010 |
z |
2011 |
z |
2012 |
z |
2013 |
z |
2014 |
z |
||||||
|
||||||||||||||||||||
| World | ||||||||||||||||||||
| Coal trade | Mt |
696.5 |
718.6 |
699.7 |
723.0 |
746.6 |
770.8 |
800.5 |
832.4 |
|||||||||||
|
||||||||||||||||||||
| Imports | ||||||||||||||||||||
| Asia | Mt |
378.1 |
391.5 |
378.9 |
400.6 |
419.1 |
438.3 |
464.5 |
492.9 |
|||||||||||
| China | Mt |
41.4 |
34.0 |
33.0 |
40.0 |
47.0 |
53.0 |
60.0 |
65.0 |
|||||||||||
| Chinese Taipei | Mt |
61.3 |
62.0 |
62.0 |
64.5 |
65.3 |
65.8 |
68.0 |
74.9 |
|||||||||||
| India | Mt |
30.7 |
34.0 |
40.0 |
47.0 |
52.0 |
60.0 |
70.0 |
80.0 |
|||||||||||
| Japan | Mt |
128.3 |
135.0 |
125.0 |
126.0 |
126.3 |
126.6 |
126.9 |
127.2 |
|||||||||||
| Korea, Rep. of | Mt |
65.8 |
73.5 |
69.0 |
71.0 |
73.0 |
75.0 |
79.4 |
83.2 |
|||||||||||
| Malaysia | Mt |
15.8 |
16.5 |
15.0 |
16.9 |
17.7 |
18.4 |
19.2 |
20.0 |
|||||||||||
| other Asia | Mt |
34.9 |
36.5 |
34.9 |
35.2 |
37.8 |
39.5 |
41.0 |
42.6 |
|||||||||||
| Europe | Mt |
230.5 |
233.9 |
221.8 |
220.0 |
222.7 |
225.2 |
226.6 |
227.8 |
|||||||||||
| European Union a | Mt |
188.3 |
193.9 |
182.0 |
180.3 |
180.9 |
181.4 |
181.0 |
180.4 |
|||||||||||
| other Europe | Mt |
42.2 |
40.0 |
39.8 |
39.8 |
41.8 |
43.8 |
45.6 |
47.4 |
|||||||||||
| Other | Mt |
87.9 |
93.2 |
99.0 |
102.4 |
104.8 |
107.2 |
109.5 |
111.7 |
|||||||||||
|
||||||||||||||||||||
| Exports | ||||||||||||||||||||
| Australia | Mt |
112.2 |
126.3 |
128.0 |
133.0 |
141.0 |
147.0 |
150.0 |
155.0 |
|||||||||||
| China | Mt |
50.7 |
42.0 |
41.0 |
40.0 |
38.0 |
35.0 |
32.0 |
30.0 |
|||||||||||
| Colombia | Mt |
67.2 |
68.0 |
69.0 |
74.0 |
81.0 |
88.0 |
95.0 |
102.0 |
|||||||||||
| Indonesia | Mt |
190.7 |
198.0 |
203.0 |
212.0 |
222.0 |
230.0 |
240.0 |
250.0 |
|||||||||||
| Russian Federation | Mt |
85.2 |
80.0 |
81.0 |
81.5 |
82.6 |
83.8 |
84.2 |
84.5 |
|||||||||||
| South Africa | Mt |
65.8 |
66.0 |
67.0 |
70.0 |
73.0 |
76.0 |
79.0 |
84.0 |
|||||||||||
| United States | Mt |
24.2 |
33.0 |
26.0 |
23.8 |
21.7 |
19.8 |
18.1 |
16.5 |
|||||||||||
| Other | Mt |
100.5 |
105.3 |
84.7 |
88.8 |
87.3 |
91.2 |
102.2 |
110.3 |
|||||||||||
|
||||||||||||||||||||
2006-07 |
2007-08 |
2008-09 |
f |
2009-10 |
z |
2010-11 |
z |
2011-12 |
z |
2012-13 |
z |
2013-14 |
z |
|||||||
|
||||||||||||||||||||
| Australia | ||||||||||||||||||||
| Production | Mt |
181.1 |
185.1 |
200.4 |
199.7 |
206.6 |
214.7 |
223.1 |
236.5 |
|||||||||||
| Exports | ||||||||||||||||||||
| Volume | Mt |
111.6 |
115.1 |
130.4 |
131.5 |
137.0 |
144.0 |
151.0 |
163.5 |
|||||||||||
| Value | ||||||||||||||||||||
| – nominal | A$m |
6 758 |
8 365 |
18 453 |
13 222 |
12 470 |
13 770 |
15 566 |
17 947 |
|||||||||||
| – real b | A$m |
7 128 |
8 534 |
18 453 |
12 971 |
11 935 |
12 857 |
14 180 |
15 951 |
|||||||||||
| a Regarded as twenty seven countries for all years. b In 2008-09 Australian dollars. f ABARE forecast. z ABARE projection. Sources: International Energy Agency; Coal Services Pty Ltd; Queensland Department of Mines and Energy; ABARE. |
||||||||||||||||||||