Asia continues to be the main area of activity in international coal trade this year. China and India remain major consumers and producers in the region, but with the former exhibiting lower economic growth during the past year. While GDP growth in China remains above 7% the country’s consumption of coal has been decreasing by some 1.5% year-on-year. Coal production also declined last year, due to government intervention in order to tighten supply in the weak market. This economic trend is currently forecast to continue in 2015 but coal consumption is expected to grow by a modest amount. That is also likely in 2016 so China remains a key market for coal imports in the Asian region albeit as a less spectacular one than it has been during the past decade. The international market is sensitive to any government intervention in the Chinese market which occurs from time to time, and this has been the case again over the past six months.

China exported about 2.45mt (million tonnes) of thermal coal last year which reflects its decline as a major coal exporter over the past few years. The only reported markets were in Japan, Korea, and Taiwan in 2014, and China is now established as a net importer of coal.

Exports to these markets decreased during 2014 and prospects for 2015 look lacklustre. One of the main constraints on Chinese coal
export potential is the relatively high cost compared to competitors in the international market. The China Spot Price
has been around US$80-90/t FOB basis 6,000kcal/kg NAR (net as received) which places the shippers well out of the running for most buyers amid
the current weak market. This compares with around US$60/t in Australia and Indonesia, as well as Russia in the Asian region. Almost three quarters of China’s coal mining companies have been recording losses and wage payments have also been a problem to meet during the past year. The China National Coal Association 

continues to lobby the government over economic issues affecting the domestic coal industry. This probably helped in making the decision to reduce
export tariffs from the beginning of 2015. The tax rate was reduced from 10% to 3% on all coal for export, which was hoped
to increase the shippers’ competitiveness in the international market. The Association is also lobbying for a
reduction in the rate of VAT on coal mining from 17% to 13%. As the first quarter of 2015 comes
to a close, the Chinese coal exporters continue to be uncompetitive in the market, and domestic supply appears to be more than adequate. Some tonnage may be being sold at competitive rates but these deals remain unconfirmed. Stocked coal needs to find a buyer somewhere. Of the major power stations surveyed, around 100mt of coal was reported to have 

been in the stock piles at the end of 2014. In the coming years, coal is expected to face competition from substantial additional nuclear and hydro generation capacity, particularly in the coastal areas which have been key markets for imported coal.

Demand for imported thermal coal in China slowed in the second half of 2014 after a stronger start. The decline was attributed to high availability of hydro power amid low prices and high coal stocks at the domestic mines. The overall weaker economic situation did not encourage firm consumption of thermal coal during the second half of 2014. The latest estimate for total coal imports in 2014 is 197mt. About 60mt of this was low grade lignite, and thermal coal imports were an estimated 133mt. The quantity of lignite being imported increased during the panic over the threatened ban on low grade coal which the government announced during 2014. Indonesian exporters provided the bulk of the low grade coal taken by China last year.

As the new quality control regulations came into force at the start of 2015 there were reports of delays at the receiving ports in China, and there were even some reports of cargoes being turned back. Whether these were returned to their origin, or were able to find new buyers outside China is unclear. The whole exercise was, however, extremely costly and probably caused more overall environmental emissions and other impacts than if the coal had been accepted. As mentioned earlier in Coal Market Intelligence the Chinese authorities now require all suppliers of coal to provide a trace element analysis and to guarantee those limits. Market reports indicate that this is not being done in all cases due to the potential for future claims on the supplier. Others have been providing such analyses with guarantees while demanding a premium on the coal price.

Previously accepted material with certain specifications will no longer be permitted. These include lignite with sulphur content of more than 1.5% and ash above 30%. Any other coal with sulphur content above 3% and ash above 40% is also banned from being imported. There will also be limits on coal specifications if it has to be transported more than 600km from a port or mine to the consumer. Some of these rules are quite cumbersome. Lignite with CV lower than 3,941kcal/kg NAR, sulphur content greater than 1%, and ash above 20% is one limit.

Other coal with CV higher than 4,300kcal/kg NAR and sulphur content above 2%, and ash above 30% is another limit.
The Chinese government has also imposed new rules on other elements potentially present in coal, and these include arsenic, chlorine,
fluorine, mercury, and phosphorus. The paperwork  
for shippers has also grown, and requires details on the originating mines of the coal, the location and contact details of the consumer, and the transport distance.

The Indian coal sector is estimated to have seen growth in imports of about 26mt in 2014, taking the total to about 160mt. The major supplier country was Indonesia last year with an estimated 115mt, with South Africa coming second, and Australia also with significant tonnage of over
6mt. Other countries including Chile made up the remainder 
of an estimated 25mt of imports. Coal India Limited, which produces about 80% of the country’s coal, had set a production target of 507mt of coal for FY2014, but is falling short of achieving that quantity. The miner is, however, increasing output each year but is not being able to meet the new annual target. 

The target last year was 452mt. India relies on coal for more than three quarters of its electricity generation, and about 60% of installed capacity is coal- fired. The country is managing to increase thermal generating capacity more rapidly than it has been targeting.

Players in the Indian coal market saw a more stable situation during 2014 following the elections in April, and this helped trade compared to the previous
year. Domestic producers and traders, as well as international players had sought clarification of various government regulations which were then forthcoming.
The rupee also stabilized and strengthened, and this was seen as a boost to the coal sector. The slump in the coal and freight market also allowed buyers to import coal at much lower delivered prices in 2014. A decrease of about 25% was seen for South African coals, while coal from other supplier sources was purchased at smaller but still significant decreases The South 
Africans benefited from these market conditions and sold around a third more coal to India in 2014. The final tonnage is estimated to be around 30mt compared to about 20mt in 2013. With new restrictions affecting the Chinese markets in 2014, Indonesian shippers were able to take advantage of the firmer demand from India and sold substantially more tonnes there compared to the previous year. Although prices were weaker for the Indonesian exporters, there was less of a severe impact due to the Chinese rules, and Indian buyers welcomed the lower prices in rupee terms as well.

Domestic coal production and supply in India continues to be constrained by regulations. A new Coal Mines Bill was not passed as hoped last year, so the coal sector is still lobbying for this legislation to be implemented in order to increase supply of domestic coal. Consumers would benefit from the new legal provisions which would give access to new coal blocks to the state miners as well as private companies following government auctions. Meanwhile, the steel makers, cement industry, paper mills, and other consumers face supply issues on a regular basis. The future of imported coal looks firm and is likely to continue to grow until the regulations improving domestic coal mining are introduced. This could take more time, based on recent experience.

Transport infrastructure remains inadequate in India and these constraints have impacted the ability of importers to bring in as much coal as they had hoped for. Organization and logistics remain a problem, with plenty of opportunities to improve efficiency. Coal receival at the ports has been slower than required, and vessel congestion has been an issue. This was more serious on the east coast where the bulk of Indonesian coal imports seems to have been arriving. A substantial investment is being made to expand port capacity with some reports indicating close to US$10bn could be spent in the next few years. The railways are also under severe pressure to transport sufficient coal to the consumers, and there is a serious shortage of coal wagons. Transport by rail is cheaper than the alternatives, so the shippers and customers have been adversely affected when they are forced to use road haulage at substantial additional costs. In some cases this is reported to have added an extra third onto the cost.

The Japanese thermal coal market has been firm and steady over the past couple of years, with a modest increase in imports reported for 2014. This brought the total to about 130mt which was an increase of some 0.5mt. The buyers took advantage of the much weaker Russian rouble last year, and purchased more coal from that country. Growth in Russian supply reached a total of some 9.8mt which was an increase of 1.8mt or 18.3% compared to 2013. The most competitive alternative supplier country was Indonesia, but the Japanese took less of its lower quality material in favour of the better priced and higher quality Russian coal. Around 35mt of Indonesian coal went to Japan in 2014 which was the lowest amount since 2011. The freight disadvantage also did not favour shippers further away, including Canada, South Africa, and the USA. Imports to Japan from those countries were lower in 2014 compared to the previous year. Australia maintained its role as the main coal supplier to Japan with around 80mt shipped in 2014 which was about the same as in the previous year.

Since the Fukushima disaster, Japan has almost 50 nuclear power plants inactive and this has contributed to the increase in coal-fired generation over the past three years. There are indications that some nuclear power generation will resume in the coming months after safety regulators have completed their work. The Sendai nuclear power station operated by Kyushu Electric Power has been given approval to resume generating electricity. It will the first nuclear plant to be reactivated since the Fukushima disaster.

Japan has a large programme of coal-fired power generating capacity expansion, with around 13.6GW of new capacity planned.
A number of these could be commissioned over the next five years, and would lead to additional demand for imported coal. If the current programme is completed in the next decade or so, at least an extra 7mtpa of imports could be required. 

Demand for coal in Korea has remained firm over the past year, and imports are believed to have reached over 100mt in 2014. Australia and Indonesia remained the key suppliers with less impact from cheaper Russian material than in Japan. The Russian suppliers gained market
share, however, but at the expense of less competitive suppliers such as the USA. Imports of coal from Russia increased by some 1.7mt to
reach 13.2mt while US shippers lost out by the same amount taking their total shipments to just 0.4mt.

Last July, the Korean government introduced a new tax on coal consumed in the power sector, and this has resulted in greater use of higher quality coals while consumption of lower quality material decreased. More sophisticated blending techniques are being developed for those boiler designs based on the low quality coals largely sourced from Indonesia, and demand for that product will continue albeit at a lower level. Korea has plans to commission an additional 10GW of coal-fired power generating capacity over the next two years. This is expected to result in increased demand for coal over the next few years, and several million tonnes of further imports each year will arise. While nuclear generation could impact coal consumption in the future, the government has imposed very strict safety regulations on the operators and this could slow down the increase in nuclear power over the coming years.

On the supply side in the Asian coal market, the Indonesian Coal Mining Association is understood to be pleased that their new export regulations and permitting system look set to curb illegal mining. The issue has persisted for a couple of decades and there have been many attempts to stop the practice. The quantity of illegally exported coal is, however, believed to have grown to some 100mt by the end of 2013. The latest system is welcome although delays in providing legitimate exporters with timely permits this time has cost some of them in lost business. In an effort to bolster prices the government had a production target of 420mt in 2014, which was level with 2013. The impact on illegal mining will be interesting to watch, and is likely to affect the market.

New regulations and export licence terms are believed to have had an impact on Indonesian coal supply last year, with the total estimates being anywhere from 390mt to 420mt. Data from the importers has been of more use in trying to determine the figures, but it remains unclear. The new rules on low grade coal imports in China had a significant impact, offset somewhat by Indian demand. More than 30mt of coal production in the country is probably not accounted for in a timely manner each year and this seems to have been the case in 2014.

While Indonesia remains dominant in the supply of thermal coal to the Asian market, the shippers not only face regulatory changes this year, but also competition from Russia with its weak rouble, and suppliers of higher quality coal from South Africa and Australia to China.

The Australians enjoyed growth in their exports again last year after a strong 2013 as well. They have been seeing firm business in China and India, with the former now set to favour their higher quality material for imports in 2015 and beyond. Other countries remain firm buyers of Australian coal and these include Korea and Taiwan, as well as Malaysia,Thailand, and Vietnam. The main buyer, Japan, took less thermal coal in 2014 but other markets presented an opportunity such as Mexico. The European market remains a smaller target for the Australian thermal coal shippers, but it continues to show interest in the coking coal exporters.

The coal suppliers in the Asian region will be keeping an eye on growth markets in 2015. These include the large market in India where domestic supply remains inadequate, and the smaller countries with big appetites including Korea, Malaysia, and Vietnam in the east. The accompanying charts indicate recent trends and coal import volumes in those countries.

With coal prices falling since 2010 the coming year looks set to be another challenging one for coal shippers to the Asian markets, as well as the producers in some of the consumer countries. India is expected to continue its growth in demand and is also forecast to pass China as the main importer of thermal coal in the Asian market. Coal-fired power generation will remain firm in countries like Japan, Korea, and Taiwan while additional capacity is being brought on in Vietnam and Malaysia. The Australian and Indonesian suppliers dominate the market, but they are still facing challenges and pursue cost reduction policies after several challenging years now. A strong Australian dollar softened the blow for many of the operators, but other factors are contributing to the high supply situation that persists in Australia. Where the shippers are locked into a take or pay contract they are motivated to increase available tonnage, and this of course does nothing to help the coal price by bringing supply more into balance with demand.

In Russia the collapse of the rouble by some 50% against the US dollar as a result of economic sanctions is understood to have benefited some coal exporters by making them more competitive in the international coal market. This has resulted in increases in market share in some countries during 2014. A new record in overall coal export tonnage was set, but this includes all coals into other markets as well as Asia. The growth in coal imports in Pakistan which is a smaller consumer country is mainly due to increased demand from its growing cement industry, and this is expected to continue.

Overall then, there will be plenty of activity in the Asian coal market again this year, and the region will dominate trade volumes in the international coal market. At the time of writing, buyers in Korea and Taiwan were busy in the thermal coal spot tender market, allowing all players to gauge the price levels being offered from the usual shippers. Hard coking coal shippers have been seeing a weak market and their brands have been on offer at relatively low prices. The outlook for freight has been for a softening market as well, so delivered prices are currently low across the region.

Until producers are free from constraints preventing them from reducing output without financial penalties the supply situation is not going to change. Coal prices will stay low for as long as the current level of balance persists and this will suit the consumers throughout the Asian region. The key changes will be the move towards higher quality coal and greater efficiency in the established markets. India looks set to be the dominant growth market for coal in the coming few years. As always, there will be plenty of business done and the sector will be the most dynamic in the coal world. 


Dr Tim Jones is Director of Consultancy and Editor of the weekly publication Coal Market Intelligence which covers 11 spot markets worldwide, gives key information on the latest deals and tenders, company news, people and jobs, industrial relations, and ports, shipping, and freight rates.