Drewry's latest Dry Bulk Forecaster reports that coal has been the recent saviour of the dry bulk market. Global GDP grew by 3.2% in 2012, following growth of 5.2% and 4.0% in the post-recession years of 2010 and 2011. This slowdown blighted dry bulk cargo volumes and in turn tonnage demand. Global steel production, reflecting industrial and growth activity around the world, grew by only 1.3% in 2012, with a subsequent impact on iron ore and coking coal trade.

Dry bulk trade grew by an impressive 7% in 2012 with steam coal proving to be the saviour of the freight market, which otherwise would have seen a complete bloodbath. Steam coal trade increased by about 18% from 665mt (million tonnes) in 2011 to 784mt in 2012, supported by high availability and low prices.

The US is gaining increasing importance in the steam coal export market. Increased availability of cheap natural gas means it has more thermal coal to sell in the international market. In 2012, the US exported 47.4mt of thermal coal, up from 31.4mt in 2011 and 16.6mt in 2010.

Australian exports have also been on the rise, increasing to 168mt from 148mt in 2011, given the proliferation of coal mines in the country.

Indonesian exports, on the other hand, have been steadily declining. From as high as 181mt in 2010, Indonesian thermal coal exports dropped to 131mt in 2012. Struggling with shrinking profit margins in the international market, Indonesian traders are shifting their focus towards the domestic market.

Colombia has faced disruption to its coal supply resulting from a ban on night-time railing through urban areas for most of February. There was also a ban on coal loading at Drummond and strikes at Cerrejon’s mines. Furthermore, a bomb attack derailed 17 of Cerrejon’s coal wagons. This resulted in as much as 5mt of output being lost. Production is expected to recover from the second quarter of the year.

Of all the bulk commodities in the dry bulk sector, steam coal has the brightest outlook. Steam coal trade is expected to keep rising, driven more by abundant supply than high demand. High availability of coal will keep prices low enough to ensure steep increases in imports.

Moreover, freight rates are not expected to recover by much in the next few years, which will further cap CIF (cost, insurance, freight) prices, thereby supporting buying. Despite having a strong mandate favouring greener fuels, low prices have persuaded Europe to switch to coal.

India and China are expected to drive growth in coal trade. India in particular, is expected to be pivotal to thermal coal trade as its power sector expands rapidly. Given the increase in population and very low per capita power consumption, big expansion plans have been laid out by private power companies. To fuel these power plants, India has been increasingly dependent on imported coal. In fact, by the end of this decade, India’s thermal coal imports are projected to surpass those of China.

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