Dr Tim Jones, e-coal.com

The main potential for larger coal consumption has been in Germany, The Netherlands, and Turkey over the past year, with increased power generating capacity in place and planned. The United Kingdom remains a major consumer of coal as well. Purchasing of imported coal in the international market has been evident in those regions over the course of 2014, while some other major coal consuming countries have been quieter. This is notable for Portugal and Spain. Despite the quietness in the spot market, Spanish consumption is forecast to increase by about 1mt (million tonnes) this year to reach around 11.5mt. The highest increase in consumption is expected to be in the Netherlands and Turkey, with an additional 2mt taken in each country to reach about 12.8mt and 22.8mt respectively. Alternative sources of power generation have been available in some cases, while the loss of production capability has affected the United Kingdom in particular. Germany and the United Kingdom remain the largest consumers of coal in Europe this year, forecast at about 39mt and 38mt respectively. This year, total coal demand in Europe is expected to remain firm at around 190mt which will be close to the level recorded last year.

Russia had been hopeful of higher coal exports in 2014 following the lower rail freight rates affecting the producers there, with Germany being a major customer. The situation in Ukraine has, however, been a concern since the start of this year and Russian trade to the west is less secure now. The uncertainty remains at the time of writing, but economic sanctions appear to be having an effect on the leadership. The situation for Russian exporters to the east is less serious, but production in the Kuzbass is being impacted. The forecast had been for growth again this year, but this will likely be amended downwards over the next few months. Prices are also not in the Russians’ favour due to high production costs there, and economic sanctions are forecast to further devalue the rouble against the dollar. Some coal market players have completely lost contact with trading partners in Ukraine without an explanation over the past few months, and this has affected business outside the country in other parts of Europe.

The accompanying charts indicate the trend in the spot price of thermal coal in the international markets this year, with a decrease being seen until recently. The bottom of the market may have been reached at last, with producers struggling to remain in business in many cases. Increased production and sales have been the strategy of the major suppliers, but greater supply does little to put upward pressure on the price unless demand increases substantially. The general oversupply in the market is continuing at the time of writing, but there are indications that European demand for coal could pick up in the coming months. Weaker demand in China is likely to have an influence on shipments from Indonesia and Australia, and this combined with decreasing exports of US coal could lead to some tightening in the availability of material in the international markets and consequently Europe. This change in the supply/demand balance would have an effect on prices, and recently there have been gradual increases in the price for coal delivered to Europe. The buyers there have had some challenges over supply from Colombia as well this year, with the ban on coal loading affecting Drummond early on, and threats from industrial action also impacting the European coal market. This also happened last year, with industrial action affecting production so much that total exports decreased over the course of 2013. It could be expected that such disruptions are likely in the future, so the European buyers will need to ensure their supply sources are diverse enough to cope with these incidents from time to time. Russian coal is still in demand, particularly from the United Kingdom, but recent events in Ukraine have cast uncertainty over the future of trade with Russia which could affect coal in the United Kingdom.

The troubles in Ukraine are showing an impact on coal trade after several months of conflict. The latest data indicate that production reached 3.9mt in July, which was 26% less than in the same month last year. Output was almost 15% lower than in June as the situation worsened. Some coal market players have reported losing contact with coal industry professionals in Ukraine altogether, and without explanation.


One recent development that could interest European steel makers is that the Colombian government has granted new approval for the dredging of the Magdalena River. This is expected to reduce transport costs substantially to the port, and coking coal prices could be reduced — or the producers will maintain prices at market levels and reap the benefits of better margins.

Looking more closely at the main coal importers in Europe, the United Kingdom had taken about 1mt more thermal coal from Russia during the first four months of 2014 alone. This took the total from Russia to more than 6mt and the United Kingdom became more reliant on Russia for its thermal coal supplies. The US shippers lost 1mt of thermal coal trade during the period as Russia gained this 1mt, reducing the American total to about 2.9mt. The political situation has changed since then, and the rest of the year could show a different result than had been expected with Russia back in March. Supply issues in Colombia may have also contributed to this extra interest in Russian coal during the first quarter of this year. Thermal coal imports from there reached about 2.8mt which was a decrease of some 500kt compared to the same period in 2013. South African tonnage reached less than 100kt during the period, reflecting a steady and substantial decline over the past few years. Domestic coal production in the United Kingdom declined over the first months of 2014, and the latest statistics indicate that about 4.5mt was produced in the five months to 31 May. This was only 75% of the level recorded in the same period in 2013. A number of coal mines have been closed in recent years, with more to follow. Not all of these have been for economic reasons. On the other hand, a new drift mine is planned in Yorkshire which could produce up to 200kt of coal per year based on current plans. This new Crofton mine could begin operation by the end of next year and continue to supply major coal-fired power stations in England for more than 15 years. More coal-fired generating capacity is due to be closed in the coming year, reducing demand for thermal coal, but much of this will still need to be obtained through imports. The total tonnage imported by the United Kingdom in a couple of years is nevertheless expected to remain over 35mt.

Germany has plans to commission an additional 6,500MW of coal-fired generating capacity over the next four years, increasing the demand for imported coal to those new operations. Most of this additional capacity is expected to be commissioned by the end of 2015. Although the country has plans to close some power stations, coal is not likely to be negatively affected overall and the coming years appear to be promising for coal trade in the country. Germany’s coal production reached only about 2mt during the first quarter of 2014 which was down slightly compared to the same period in 2013. Output is forecast to reach about 8mt this year, but domestic production will decrease in a couple of years after one of the last three remaining mines is closed. Germany’s thermal coal imports have been growing steadily over the past few years, and passed 30mt in 2011. Last year the total reached 38.6mt and this year the total is expected to be slightly higher at around the 39mt mark. The latest statistics showed that thermal coal imports during the first four months of 2014 increased by almost 1mt compared to the same period last year to reach almost 13.1mt. Shipments from South Africa more than doubled during that period to reach almost 2.2mt as the buyers needed to find alternative sources during the coal loading problems in Colombia. The flow of coal to Europe from Richards Bay has since eased off, and the Colombian exporters have been able to ship more steadily over the past few months despite some industrial disruptions. The total for thermal coal imports into Germany for the rest of the year is forecast to reach about 26mt.


At the time of writing, electronic trade in Europe was showing little change in the spot price of thermal coal. Richards Bay shippers noted a decrease in interest from the Atlantic in the middle of August, although Indian buyers were still visible. The strike by mechanics in Colombia saw some positive moves when the workers voted to go to arbitration and end the industrial action. European traders reported a mixed market during the middle of August, with limited activity in the ARA markets early on. This picked up after developments in Colombia as players began to absorb the news that the mechanics’ strike would be likely to have no impact on supply.


On the demand side, there were rumours of some new interest in Turkey, Germany, and the United Kingdom. Spanish and Italian consumers have been quiet for some time, but there were also some indications of interactions between suppliers who happened to have conversations over the summer break.

In recent market news, in Turkey, Nuh Cimento has been in the market seeking 100kt of coal for delivery during September to December. Cargoes are required at the port of Kocaeli. There is believed to be some difficulty with Russian and Ukrainian supply in the Black Sea now, and other sources may be of interest. The cement maker can take coal with sulphur content of up to 1.5%.

Back in May, a cargo of Ukrainian coal was seen purchased for the Turkish steel sector. The political situation in both countries at the time did not appear to be affecting coal trade that much, with Turkey relying on the Black Sea suppliers. There had been no reports of shippers from other countries selling thermal coal to a Turkish steel maker around that time The price is believed to have been about US$75/t FOB (free on board) basis 6,000kcal/kg NAR (net as received). Cement maker, Kipas was seeking a Panamax cargo of thermal coal for delivery to Iskenderun in June. Russian or Ukrainian shippers were the likely suppliers with the most competitive delivered prices. These are believed to have been in the high US$70s per tonne basis 6,000kcal/kg NAR. Turkey suffered a tragic mine disaster when 283 coal miners were confirmed dead, with at least another 140 missing after an explosion at the mine in Soma on 13 May. The disaster led to mass protests against the government and mine operator. It was the worst mining disaster in Turkey’s history.

The European market has shown limited physical spot trade done for South African tonnage lately. The thermal coal spot market at Richards Bay has seen prices slump to the lowest level since 2010 during August 2014. Indian buyers are reported to have had coal offered for US$68.50/t FOB basis 6,000kcal/kg NAR for loading in September. Prices have been a little firmer for October loading at around US$69.65/t FOB same basis. There may be opportunities for South African shippers in those European markets previously more reliant on Ukraine and Russia, despite the freight disadvantage from Richards Bay.


In Germany in August, a utility buyer is understood to have purchased 160kt of US high sulphur thermal coal from the Illinois Basin for delivery in two Panamax cargoes to the German ports. The higher energy material contains over 2.5% sulphur which suggests a quality-related discount of a few dollars per tonne. Delivery is required in November, and August 2015.

In Croatia, RWE has been in the market seeking coal for the Plomin power station for delivery during H2 2014. Coal specifications included CV 6,000kcal/kg NAR and sulphur 1% (max). Meanwhile, in a lacklustre European spot market for thermal coal during Q2, the forecast for the Italian consumers at the time suggested the total for coal imports this year could reach 16.5mt. The Italians have not been visible in the spot market lately, but contract deliveries are understood to be fairly solid for the rest of the year. Market players and some analysts are also predicting an increase in coal imports to Spain during 2014.

In corporate news, Glencore Xstrata has reported from Switzerland that coal production increased by 5% to 71.2mt during the first half of 2014 compared to last year, mainly due to productivity improvements and ongoing expansion projects in Australian thermal coal, and a 32 day strike at Cerrejón which impacted Q1 2013. The company reported an average price of US$123/t FOB for its Australian hard coking coal sales during the period. This was a decrease of 21% compared to the US$155/t reported last year. An average price of US$98/t FOB was reported for its Australian semi-soft coking coal sales during the period. This was a decrease of 17% compared to the US$118/t reported last year. Export Australian thermal coal recorded an average price of US$75/t FOB during the period. This was a decrease of 13% compared to the US$86/t reported last year. Export South African thermal coal recorded an average price of US$72/t FOB during the period.

This was a decrease of 13% compared to the US$83/t reported last year. Cerrejón’s export thermal coal from Colombia recorded an average price of US$68/t FOB during the period which was a decrease of 11% compared to the US$76/t reported last year. Export Colombian Prodeco thermal coal recorded an average price of US$78/t FOB during the period. This was a decrease of 11% compared to the US$88/t reported last year.

In the United Kingdom, a new coking coal project is to be developed by West Cumbria Mining in Whitehaven. Stage 1 of the project is to develop a new mine next to the existing Haig Colliery which is now closed. Current estimates suggest there are 750mt of coking coal in the area, and the project has received financial backing from EMR Capital Resources, an Australian private equity fund.

A total of 10.04mt of thermal coal was imported by the United Kingdom during Q1 of this year. This was an increase of 340kt or 4% compared to the same period in 2013. Russia was the main supplier during the quarter, with 5.15mt recorded. This was an increase of 1.33mt or 35% compared to the same period last year. The Colombian shippers saw a decrease in supplies to

the United Kingdom during the quarter amid the loading ban on Drummond, and other constraints. The total reached 2.36mt which was decrease of 300kt or 11% compared to the same period in 2013. Overall, coking coal imports increased during the quarter to reach 1.35mt compared to 1.14mt in the first quarter in 2013. The USA was the main supplier with 700kt shipped compared to 440kt in the same period last year. Meanwhile,Anglo American reported an increase of 45% in total coal exports during Q1 2014 compared to the same period last year. Coking coal exports from Australia and Canada totalled 6.1mt which was an increase of 31% compared to the same quarter last year. Thermal coal exports from South Africa increased by 6% to reach 4.1mt. The company has an export target across its coal operations of about 50mt in 2014.


In Russia, Baltic Coal Terminal is reported to have exported 2.03mt of coal during the five months to 31 May this year. This is a decrease of 1.5% compared to the same period in 2013. The 6mtpa (million tonnes per annum)- capacity facility mainly exports thermal coal from Kuzbass to the main customers in northern Europe.

In the coming decade and beyond, coal demand in Europe is forecast to decline as legislation favours other fuels due to restrictions on emission levels. This legislation has already forced the closure of domestic coal mines in some regions. For the time being, however, overall demand is expected to remain firm at over 190mt in the current year. In the past couple of years, environmental legislation has led to the closure of a mine in Scotland, but coal demand has still had to be satisfied by imports from elsewhere including Russia, Colombia, and Poland. With prices staying so low, the US exporters are less keen to trade in the international market, and that country’s role as swing supplier is being fulfilled at present. Germany and the 


United Kingdom look set to be the main trading countries for coal within Europe, while Turkey and The Netherlands are also expected to import significant tonnage. Turkey increased its coal-fired electricity generation by almost a quarter during the first five months of this year, with new plants being commissioned this year. The future of Russian and Ukrainian coal trade is more uncertain at present, and while the general media has been reporting about the reliance on Russian gas in some European countries, there has not been much reporting on the impact on the coal sector. The situation in Ukraine has had an impact on the coal trade, and associated businesses have been affected in other parts of Europe. These first impacts appear to have been largely due to the conflict rather than the economic sanctions imposed subsequently. A large proportion of the population is understood to have moved away from some towns and cities in the coal producing region, and this is bound to have an adverse effect on coal trade.

For the rest of Europe the coming year looks set to be another challenging one for various reasons including this, but with improved economic performance now being seen after the long recession the demand for electricity and fuel will be firmer overall. There will be the usual short-term variations in coal demand such as the current preference for cheaper gas in the United Kingdom power mix, and higher stocks of coal on the pads there over the summer. There will, as always, be plenty to watch in the European coal market, with players now starting to gear up for the coming winter and the buying and trading over the autumn months.

Dr Tim Jones is Director of e-coal.com 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.