Dr Tim Jones, e-coal.com 

European thermal coal demand is expected to be about 160mt (metric tonnes) this year, and has been steadily decreasing from 197.5mt in 2012. Much of this decline has been in the United Kingdom. The delivered price of thermal coal into northwest Europe in February this year fell to the lowest level since 2003 and was reported to be US$42/t basis 6,000kcal/kg NAR (net as received). The market has since firmed in the region of US$60/t basis 6,000kcal/kg NAR.

The United Kingdom saw a slowing in thermal coal imports as this year got under way, largely due to lower gas prices and economic incentives which favour gas over coal. The closure of many British coal-fired power stations in order to comply with European Union legislation on emissions over recent years has also meant demand for thermal coal has declined substantially.

During 2016 alone so far, another 5.4GW of coal-fired power generating capacity has been shut down for good. This happened at the Longannet, Ferrybridge, and Rugeley power stations. The United Kingdom now has only some 13GW of usable coal-fired power generating capacity left.

Electricite´ de France has cancelled its planned upgrades at the 2GW Cottam and 2GW West Burton coal-fired power stations amid low electricity prices. The French company also withdrew from contracts with the UK government which would have seen the two power stations operating during the winter months in 2019–20 and 2020–2021. The future of the two power stations is now uncertain, and if closed as well, will lead to further decreases in demand for coal in the United Kingdom during the 2020s.

At the time of writing, for the period January to May 2016, total thermal coal imports reached only 2mt. This compares with 10.2mt imported during the same period in 2015. Estimates suggest the United Kingdom could import only about 5mt of thermal coal in 2016 in total, indicating a substantial decrease in tonnage over the past couple of years. In 2015 a total of 17mt was recorded, but that was also a substantial decrease compared with the year before that at 32.4mt. Imports from Russia during the first five months of 2016 were down drastically at only 0.6mt compared with 4.9mt during the same period in 2015. The other main supplier countries, Colombia and the USA, saw shipments fall by some 3.8mt between them.

Coal consumption in the United Kingdom has decreased this year compared with last year, and the latest estimates suggest the total thermal coal consumption could be around 14mt in the lowest case scenario. That would be less than half that recorded in 2015 at some 29mt. Consumers have been using a significant quantity of domestic thermal coal during 2016, particularly at the power stations due for closure, and this is reflected in the lower import tonnage being reported. In the first four months of this year, thermal coal stocks had decreased from about 12mt at the start of the year to about 7.5mt. A seasonal increase in import demand is possible during the remainder of the year as winter approaches, and strategic stockpiles are kept at the required levels. This would appear to be on a spot basis as the contract market has been reported to have been very quiet this year. Only 10kt of coal was produced in the United Kingdom’s remaining deep mines in the first five months of 2016. This compares with 1.5mt during the same period last year. The opencut mines produced 1.6mt in the first five months of 2016 compared with 3mt in the same period in 2015. Demand for coal imports next year is forecast to increase compared with this year, but given the state of the coal-fired power generating sector it is unlikely to reach levels recorded just a couple of years ago.

Germany has continued to increase its power generation from coal in the aftermath of the Japanese nuclear disaster. Output from renewable sources has also been increasing but in contrast to the United Kingdom this year, gas-fired power generation was also lower in the period up to the time of writing. The country’s domestic coal output, however, was only half that recorded last year during the period from January to March this year at 1.3mt. Germany now has only two coal mines left; the Ibbenbu¨ren and Prosper Haniel operations. These are also doomed due to the European Union policy of ending financial support for coal mines. The last German mines will close by the end of 2018, and will follow the closure of the Auguste Victoria mine last year.

Thermal coal imports to Germany reached close to 14mt during the period from January to April this year, which was a decrease of about 0.5mt compared with the same period last year. Polish and South African shippers lost out to Russian exporters during that period, with the latter recording 6mt in total. Coal-fired power generating capacity is due to decrease overall in Germany by 2020 despite new coal- fired plants being commissioned. With the demise of domestic coal production, the country will be reliant on imported coal in the next decade, but demand will be relatively low if competition from renewables and other fuels dominates the electricity generating sector.

Coal is the main source of energy in Poland’s power generating sector, but consumption has been facing competition from other sources including renewables this year. Gas and wind power displaced some coal in the first part of 2016, and electricity generation from coal was lower during the first quarter compared with the same period last year. Coal imports were only 1.4mt during the first quarter of 2016 which was 0.3mt more than in the same quarter last year. Domestic production satisfies the bulk of Poland’s coal demand, with Russia supplying some cheaper material for the Baltic coast users this year.

Poland produced 28.4mt of hard coal in the five months to 31 May 2016. Some 23mt of this was thermal coal and these results were only slightly lower than those recorded in the same period in 2015. Demand has been sufficient to allow the large stocks of coal around the mines and facilities to be used, and to reduce some supply pressure on producers. The government bailed out the loss making Kompania Weglowa in April with over $600 million in total, allowing the national coal miner to remain in operation amid high production costs at its deep mines, and low coal prices. Government policy is aimed at supporting the domestic coal producers so this will affect the coal import market for the foreseeable future, with forecasts suggesting little or no growth in imports.

Italy’s coal-fired power production got off to a poor start this year with about a third less output from coal in the first five months which was taken up by the use of gas amid lower hydroelectric power availability. Thermal coal imports by Italian consumers have been fairly steady in recent years at about 16mt so the country has been a significant customer for coal shippers to Europe. Steady tonnage has been purchased from Colombia, Indonesia, and Russia each year, while in 2015 there was increased buying from South African exporters, reaching 4mt. This replaced most of the decline in tonnage available from the USA. Colombia and Russia had most of the business in the earlier part of this year. Enel shut down its 140MW Marghera coal-fired power station in 2015 and as a member of the European Union its coal consumers are facing pressure in the coming years to comply with various regulations which adversely affect the use of coal. Thermal coal imports are therefore expected to decrease over time, and are forecast to fall by about 1mt this year to reach a total of about 15mt.

Turkey continues to be a major consumer of coal in eastern Europe, with a total of 27.8mt imported in 2015. This compares with just over 16mt recorded in 2010, and demand this year has also been firm. Coal-fired power generation dominates the Turkish electricity sector, and production has grown during 2016. Electricity generation from renewables has also been growing, with energy sources including hydro, wind, and biomass seeing increased utilization this year. Recycled waste has also recorded increased use in electricity generation in Turkey recently. These alternative sources of energy have displaced consumption of gas, while slowing what could have been a higher rate of coal consumption growth this year.

During the first five months of 2016, thermal coal imports reached 11.1mt which was an increase of about 0.4mt compared with the same period last year. The bulk of this came from Colombia which recorded 5.3mt. This was an increase of 1.3mt compared with the same period last year.
Russian shippers delivered 4mt during the five months which was an extra 0.4mt compared with the equivalent time in 2015. Less South African tonnage was received by Turkish buyers during the period, with 1.3mt less being shipped from Richards Bay to reach 1.512mt. The lack of business with Ukraine since the Russian move there is notable.

An additional 1400MW of coal-fired power generating capacity is due to come online soon and Eren Enerji’s existing power station in Catalagzi-Zonguldak could consume up to 6.5mtpa (million tonnes per annum) of coal when at 2790MW capability.

Thermal coal import demand is forecast to increase in Turkey in the coming years as more coal-fired power generating capacity is constructed. At present, nine power companies have plans for a total of 8665MW to be added to the country’s portfolio of coal-fired plants, with planned commissioning dates ranging from this year to 2020. Three of the largest of these expansions amount to 3720MW and are likely to take until 2020 or possibly longer based on the current rate of progress.

Spain has enjoyed increased hydro electric power availability during the first half of 2016, while generation from coal decreased. This was also the case for nuclear power and gas consumption. Thermal coal imports have been increasing in the past couple of years, after a significant drop to 10.5mt in 2013 to reach 16.3mt in 2016. The high availability of hydro power appears to be the main factor that will cause a decrease in coal consumption this year, and imports are forecast to decline to about 14mt and remain subdued in 2017.

Spain is being paid 2.1 billion by the European Union to close 26 coal mines by 2019. With a bleak future for coal-fired power stations as well, there is unlikely to be an increase in demand for thermal coal imports in the future.

Portugal saw increased power generation from strong hydro availability and the use of renewable energy in the first half of this year. This impacted coal consumption at the Sines and Pego power stations. It appears, however, that the thermal coal importers decided to build their stocks amid this climate of lower coal demand, and recorded imports were higher than in the same period last year. South African tonnage has been received, as well as more Colombian material. Overall this year, imports are forecast to reach around 4mt which would be some 1mt less than in 2015.

Coal demand in France has been weaker this year after reaching around 8.3mt in 2015. The total could be around 2mt lower this year, and the country started the year with lower consumption compared with early 2015. Nuclear generation was also lower, but the overall electricity production level was similar to the same period last year. The level was maintained by increased use of gas, wind, and hydro.

Coal imports did not rise as much as they could have in the early part of this year because consumers drew down from stockpiles, using up more than 1mt during the first four months of 2016. Nevertheless, there was an increase in coal imports during the four months to 30 April with 3.3mt recorded which was 0.6mt higher than in the same period in 2015. Long haul product from Australia increased by 588kt during that period compared with 2015, to reach 664kt. Russia supplied 841kt and the Colombian shippers sent 668kt during that period which were both higher than in the same period the previous year. South African supply was down by 295kt to reach 465kt, and US exporters shipped only 74kt compared with 393kt in the same period last year.

The French coal-fired generating sector has also been decimated by the European Union with 3.5GW of capacity shut down to comply with regulations issued in Brussels. The country now has only 3.02GW of coal-fired generating capacity left, and a further 0.6GW is being converted to biomass fuelling. Coal consumption in 2015 reached 3.4mt. A government carbon tax looks set to reduce coal consumption and therefore import demand to much lower levels in the coming years rendering France a small market compared with what it was.

Belgium imported 1.7mt of thermal coal for its domestic use last year, and has maintained trade at about 1.3–3.0mt over recent years. Overall imports are recorded as higher because other tonnage is shipped on to customers in other parts of Europe. In 2015, the total import tonnage received in Belgium reached 3.174mt so almost half of that was then moved on to other countries. Demand elsewhere in Europe determines the overall volume arriving in Belgium, and this amounted to 5.632mt in 2010, of which only 1.322mt was consumed within the country itself. Last winter, Belgium was burning more coal than in the same period a year earlier and recorded 0.671mt imported for its own consumption during the first quarter of 2016. This was 0.154mt higher then during the same quarter in 2015. Most of the coal came from Russia, which shipped 0.7mt and recorded an increase of 0.1mt compared with the first quarter in 2015. Total imports reached 0.947mt this time. Coal- fired electricity generation during the five months to 31 May was lower compared with the same period last year. Significant increases were recorded for nuclear generation which dominated the power sector during that period after two dormant nuclear power stations were restarted last December. After shutting down its nuclear assets, Germany then found itself with these nuclear facilities operating on its doorstep again. While the Belgian nuclear plant continue to operate, the demand for coal is set to diminish in the country. Imports for its own use could drop to around 1mt next year.

Denmark’s thermal coal demand has been declining in recent years. Gas consumption for power generation has also decreased as biomass fuel has grown in use, and the country also imports electricity from neighbouring countries. The availability of hydroelectric power from Norway has been notably strong this year. Dong Energy has been converting the 250MW Avedore and 375MW Stadstrup coal-fired power stations to biomass firing, and HOFOR is doing the same at the 95MW Amager 2 coal unit. By 2017 there will be even less demand for coal in Denmark.

Thermal coal imports reached 2.77mt last year, compared with 4.23mt in the previous year. Colombian and Russian suppliers enjoyed some increase in
shipments during the early part of 2016, but at the expense of the South African exporters who saw no business in the first four months of this year compared with 0.17mt during the same period in 2015. Less than 2mt of thermal coal imports has been predicted for 2016.

Finland was one of the main consumers of coal in northeast Europe, but again this has seen decreases in recent years from 5.7mt in 2011 to 2.2mt last year. The early part of this year saw coal buck the trend and coal-fired power generation increased during the first few months of 2016. Total thermal coal consumption in the first quarter reached 1.11mt which was an increase of some 4% compared with the same period last year. There was a draw down of coal stocks at the power stations during that period from 3.5mt at the start of January to 2.9mt at the end of March. While imports tend to increase later in the year in Finland in order to build up stock requirements ahead of the winter, the general decreasing consumption and import trend is expected to continue. Almost three quarters of Finland’s imported coal comes from Russia, but the volumes have been small this year. In fact, the year got off

Discussions with coal market traders at the time of writing indicated that positions had been taken which were keeping short term prices steady. This was particularly so for coking coal. Plenty of coal is still available from major suppliers. Freight rates are favourable for large Capesize cargoes to be shipped from Newcastle to Europe at present. Several cargoes of Australian thermal coal have arrived in north west Europe recently and more are due to be delivered in the coming weeks. The deals appear to have outwitted competitors trying to sell thermal coal from suppliers nearer to Europe and they have been unable to understand the finances of the Australian deals.

Thermal coal prices in Europe have been gaining ground at the time of writing, but coal stocks on the pads in the Amsterdam– Rotterdam–Antwerp ports have been increasing due to the reduced coal consumption over the summer months. These were approaching 4mt overall for all coal types in the three ports at the beginning of September. A July loading  recently arrived from Newcastle with standard quality Hunter Valley product for a European utility. A similar cargo is en route for delivery in October, along with at least another two for one trader. The price of the coal at the time of the deals is believed to have been in the mid US$60s per tonne FOB (free on board) basis 6,000kcal/kg NAR.

With thermal coal prices having hit the lowest level for twelve and a half years in February this year, and since recovering, there is some optimism in the international coal market. The fundamental supply/demand situation may be moving more into balance, driven largely by cuts in production in China and the USA. While this may result in more activity in some world markets, the European thermal coal market operates within the European Union policy of greener power generation, at least for those countries subject to the rules set in Brussels. While the United Kingdom has voted to leave the European Union, it is too late to address its decommissioned coal-fired power stations, and how they might have helped its coal industry and associated assets and businesses to operate, so coal demand will now remain low there. In the years ahead it could be a different scenario for the future of coal trade in Europe if other countries vote to leave the European Union and find themselves able to consider their own policies on coal utilization once more.

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.