In 2006, world thermal coal trade is estimated to have increased by 6 per cent to 611 million tonnes. A key contributor to this outcome was strong growth in imports in Asia, especially in China and India. In 2007, world thermal coal trade is forecast to increase by another 4 per cent to total around 636 million tonnes.
Significant growth in demand for thermal coal is forecast for both China and India. This is associated with forecast strong growth in coal fired electricity generation, which itself reflects strong growth in electricity demand. Across Asia more broadly, thermal coal imports are forecast to increase by around 7 per cent in 2007 to total 346 million tonnes.
Higher global thermal coal demand is expected to be met by increased exports from countries such as Australia, Colombia and Indonesia. Recent investment in mines and infrastructure, in response to high coal prices, has resulted in increased production capacity in key exporting countries. In particular, Australian, Indonesian and Colombian coal producers are now well placed to take advantage of forecast increased demand for imported thermal coal.
China
China is the world’s largest coal producer and consumer. Despite recent increases in domestic coal production, China’s imports of thermal coal continue to grow. In 2005, China’s thermal coal imports were more than 18 million tonnes, compared with around 2 million tonnes in 2001. In the first nine months of 2006, China’s imports of thermal coal increased year on year by almost 80 per cent to 22.8 million tonnes and are estimated to total 30 million tonnes for 2006 as a whole.
Conversely, China’s thermal coal exports fell by 19 per cent in 2005 to 66 million tonnes and are estimated to have fallen by a further 12 per cent in 2006 to 58 million tonnes.
The gap between China’s exports and imports is expected to continue to narrow over the short to medium term. Recent policy announcements indicate that China’s central government wants to better manage domestic supplies of coal (and particularly export sales) to ensure sufficient coal supply for domestic consumers. In September 2006, the government abolished a 13 per cent value added tax refund that was paid to suppliers of export thermal coal, reducing the incentive for Chinese producers to target export markets. In November 2006, the government also reduced the import duty on thermal coal from 3 per cent to 1 per cent, reducing the landed price of imported coal by around US$2 a tonne.
Reflecting these changes to trade policy, China’s thermal coal imports are forecast to increase 17 per cent to 35 million tonnes in 2007, while exports are forecast to decline by 3 per cent to around 56 million tonnes.
Japan
Japan is the world’s largest importer of thermal coal, with imports of around 114 million tonnes in 2005. Japan’s coal imports are expected to remain close to current levels in the short term. As part of its commitment to reduce greenhouse gas emissions under the Kyoto Protocol, Japan plans to increase electricity generation capacity using nuclear, hydroelectricity and other renewable energy sources. While this may limit any significant increase in coal fired electricity capacity (and hence limit growth in thermal coal imports) coal remains competitively priced against other fuels such as crude oil and LNG and its supply is relatively secure. As a result, existing coal fired electricity generation capacity is expected to continue to operate at a high utilisation rate.
In 2006, Japanese imports of thermal coal are estimated to have increased marginally to 115 million tonnes, largely reflecting higher oil and gas prices during 2006. In 2007, Japan’s coal imports are forecast to decline to 114 million tonnes as oil and gas prices ease and the contribution of nuclear generated power grows.
European Union
EU imports of thermal coal in 2006 are estimated to have increased by around 4 million tonnes (2 per cent) to 169 million tonnes. Above average temperatures throughout western Europe during the summer of 2006 resulted in a sharp rise in the use of air conditioners, and hence demand for electricity. Higher prices of oil and gas and the reduced availability of electricity from some nuclear power plants provided support for higher thermal coal demand and increased imports.
In 2006, Germany’s thermal coal imports rose by an estimated 9 per cent to 34 million tonnes, reflecting (at least in part) outages of some nuclear capacity during the peak demand months of June and July and a reduction in electricity generation from wind energy during the first nine months of 2006. In Denmark, thermal coal imports also rose in 2006 (by around 3 million tonnes to 9 million tonnes), as lower rainfall resulted in low water storage levels, and hence lower hydroelectricity generation capacity. In the United Kingdom, imports in 2006 increased by an estimated 10 per cent to around 41 million tonnes, mainly reflecting production difficulties in the domestic coal industry.
In 2007, EU thermal coal imports are forecast to remain largely unchanged from 2006 levels as increased electricity generation is expected to be fueled from gas and renewable energy sources.
Like Japan, the medium to long term outlook for EU coal imports is mixed. Factors that are likely to positively affect thermal coal imports include: the phasing out of nuclear power in Germany; and high prices and concerns about the security of supply for other generation fuels such as oil and natural gas. Conversely, commitments by countries within the European Union to reduce greenhouse gas emissions under the Kyoto Protocol may limit the potential for any substantial increase in thermal coal demand, as emphasis is placed on renewable energy sources.
India
India is the world’s third largest producer of hard coal; however, much of the coal produced is of a low quality, mainly high in ash. Coal is imported for blending purposes in order to reduce the average ash content and increase the average energy value.
Indian imports of thermal coal in 2006 are estimated to have been 23 million tonnes, an increase of 26 per cent from 2005. The growth in imports reflects the strong performance of the Indian economy and associated rapid growth in electricity demand. In 2007, imports of thermal coal are forecast to increase by a further 6 million tonnes to 29 million tonnes. A combination of high railway transport costs and reliability issues often make it more cost effective and reliable to source thermal coal from imports rather then domestic suppliers. This is because most of India’s coal production is located a significant distance away from the main coal consuming regions.
Republic of Korea
Robust economic growth and investment in new coal fired electricity generation capacity continues to drive Korea’s demand for thermal coal imports. Thermal coal remains an important part of Korea’s energy mix because of its high supply security and its cost competitiveness (on a per heat unit basis). In October 2005 and April 2006, Korea East–West Power Corporation commissioned units 5 and 6 (two 500 megawatt plants) of the Danjin coal fired power complex. Reflecting these additions to electricity generation capacity, Korea’s thermal coal imports are expected to have increased by 5 per cent in 2006 to 59 million tonnes. Between 2007 and 2009 up to 5600 megawatts of additional coalfired electricity generation capacity is expected to be commissioned. Korea’s thermal coal imports are forecast to increase by 7 per cent in 2007 to 63 million tonnes.
strong demand in the ASEAN region
Across the ASEAN region, thermal coal imports are forecast to increase in the short and medium term as broad based economic growth continues to underpin higher electricity demand.
Malaysia and Thailand
In Malaysia, the government is explicitly increasing the proportion of coal fired electricity in the total electricity generation mix as part of a broad fuel diversification strategy. One unit at the coal fired Tanjung Bin Power plant (700 megawatts) was completed in October 2006, while the remaining two units (each 700 megawatts) are scheduled to commence operations in early 2007.
In Thailand, the two 700 megawatt coal fired plants at the Map Ta Phut Independent Power Project in Rayong were commissioned during the last quarter of 2006. The Electricity Generation Authority of Thailand had requested the power plant be brought into operation ahead of schedule, in order to better balance electricity supply with demand, thus helping to keep electricity prices stable.
Reflecting new coal fired electricity generation capacity, Malaysia and Thailand are forecast to increase their thermal coal imports in 2007 to 12 million tonnes and 10 million tonnes respectively.
exports from major suppliers to increase
Exports from the world’s largest coal suppliers, Australia, Indonesia, South Africa and Colombia, are forecast to increase in 2007, reflecting improved production conditions and expansions in mine capacity.
Indonesia
Over a number of years, Indonesia has been very successful in increasing its market share in all major import markets, including Japan, the Republic of Korea and Chinese Taipei. In 2005, Indonesia emerged as the world’s largest exporter of thermal coal, with shipments of around 123 million tonnes. In 2006, Indonesia’s thermal coal exports rose by 21 per cent to an estimated 149 million tonnes.
With less need than some competitors for large and expensive infrastructure, such as railways and land based coal loading terminals, new coal production and export capacity in Indonesia can be brought on line at a relatively low cost and in a relatively short period of time. Indonesia has been well placed to take advantage of the strong growth in thermal coal demand that has occurred since 2001 and has more then doubled its total exports over this period. In 2007, Indonesia’s thermal coal exports are forecast to increase by another 11 per cent to total 166 million tonnes.
South Africa
Although projected to increase in 2007, in the first eight months of 2006, South Africa’s thermal coal exports were 46 million tonnes, a decline of 10 per cent year on year. The decline reflected above average rainfall and flooding at a number of opencut mines, as well as train derailments that affected coal deliveries to the Richards Bay export terminal. Assuming normal weather conditions and no serious train derailments, exports from South Africa in 2007 are forecast to increase to 70 million tonnes.
Exports from South Africa also have the potential to increase substantially from 2009 onwards, with the Richards Bay Coal Terminal recently having its phase V expansion approved by shareholders. Throughput at South Africa’s major coal export port will be expanded to 91 million tonnes, from its current capacity of 71 million tonnes.
Colombia
Thermal coal exports from Colombia are estimated to have increased by 6 per cent to 58 million tonnes in 2006. Exports had been previously forecast to reach 60 million tonnes but heavy rainfall and industrial disputes in the first half of the year reduced production. Colombia’s largest export market is the United States, which in 2005 accounted for around a third of Colombia’s total thermal coal exports. This share is forecast to increase in the future as US coal imports continue to grow, reflecting decreasing domestic production and stricter sulfur emission standards. Colombian coal is attractive to US power stations because of its high energy and low sulfur content. The proximity of Colombia to the US market is also an advantage. In 2007, Colombia’s exports are forecast to increase by 9 per cent to 63 million tonnes.
Australian exports to grow
Sustained higher thermal coal prices have encouraged significant investment in all parts of the Australian coal supply chain. Reflecting these developments, Australia’s thermal coal export capacity will increase in 2007 as a number of projects are commissioned. For example, an expansion of the Wambo opencut mine was completed in mid-June 2006, and in late 2006 the Boggabri and Tarawonga mines in the Gunnedah coal basin in northern New South Wales commenced operations. In early 2007, the Wambo and Ashton underground mines are scheduled to begin production. These mines will export coal through the Port of Newcastle, which will also have an increased throughput capacity. A 13 million tonne upgrade of the Port of Newcastle is expected to be completed in early 2007, giving it a total handling capacity of 102 million tonnes a year.
In Queensland, the upgrade and expansion of the Ensham mine and Dawson Complex are expected to be completed and production at the Rolleston mine will increase as the mine ramps up toward full production capacity. To accommodate increased exports from Queensland mines, the ports of Abbot Point, Dalrymple Bay and Gladstone are all undergoing expansions that will allow for increased throughput in 2007.
Reflecting higher thermal coal production in 2006-07, Australian thermal coal exports are forecast to increase by 4 per cent to around 115 million tonnes. Earnings from thermal coal exports are forecast to increase by over 3 per cent to $7.5 billion as a result of higher export volumes.
vessel queuing off Newcastle
During the second half of 2006, there was a steady increase in the number of vessels queuing off the Port of Newcastle, reflecting planned shutdowns of rail and port facilities and increased seasonal demand. The queue fell as low as one vessel at the beginning of June, before increasing to more than fifty during November. The increase in the queue during the second half of the year can be attributed to rail and port upgrades that are being undertaken as part of the expansion of the Hunter Valley Coal Chain. The peak of the queue in early December reflected a four day planned shutdown of the entire rail system to allow for commissioning of the Sandgate Flyover.
Loading operations at the Port of Newcastle have also been disrupted by planned outages as part of an upgrade that will increase the port’s annual capacity by 13 million tonnes to 102 million tonnes. The vessel queue is expected to ease in early 2007 as infrastructure upgrades allow for increased coal deliveries to the port and increased loading rates. The bigger vessel queue is also a reflection of increased demand for coal from Asian consumers, as they build up thermal coal stocks ahead of the peak winter season.
