The past year has been a struggle for coal producers with depressed prices continuing to hinder the international markets. Those miners who are able to increase volumes in order to survive have been doing so, while others have been forced out of business. Major players have been closing offices in key trading hubs which is an indicator of the state of the industry.

Russia’s involvement in Ukraine has been an ongoing concern for the coal industry over the past year, with the major producing region around Donetsk being affected. Economic sanctions on Russia have had a serious impact on some operators and there does not appear to be any sign of improvement there for the foreseeable future.

In the Atlantic market, thermal coal prices for deliveries into the ARA markets have slumped to the lowest level since 2006 recently and have since been volatile in an uncertain market in Europe. Low freight rates are combining with low coal prices to give this result. At the moment, there is likely to be an oversupply situation in this market for some time because the suppliers in Colombia and Russia have not been cutting back production amid the current slump in coal prices. 

More coal is available from South Africa as well when needed by buyers in Europe and the Mediterranean. During the past year the price of thermal coal has decreased by some 25% or more for some brands. The slump in the price of oil has helped producers reduce their overall costs and this has not led to significant cuts in output. The Colombians, Russians and South Africans have benefited from weakening currencies as well when they sell their tonnage in the international market in US dollars. Most producers, however, appear to be continuing to operate at  very tight margins. The latest threat to Russian shippers is the increase in rail rates which counters any benefit they have gained from a dramatic fall in the value of the rouble.

The accompanying charts indicate the trend in spot prices for thermal coal in the major markets around the world in 2014 and in recent years.

The latest data from the US east coast ports indicate that coal exports remained lower in November compared to last year. During the ten months to October, coking coal imports had increased by almost 75% compared to the same period last year. Low prices for all grades of coking coal, however, continue to squeeze producers in all regions, and the latest deals show little sign of improvement in the foreseeable future.

In recent corporate news, in Australia the share price of BHP Billiton sank to a five-year low in December. Low oil prices and the expectation that iron ore prices will remain historically low have played a major part in the slump over the past few months. The price of coking coal produced by BHP Billiton remains low. The company’s average price for coking coal decreased by 23% during its first half of the 2014 financial year. The average price of hard coking coal of US$110/t FOB (free on board) was down 22.5% compared to the same time the year before. Weak coking coal prices were down 20.7% at an average of US$90/t FOB. As mentioned above, high production levels are contributing to the oversupply situation in some coal markets, and during the first half financial year BHP Billiton set another production record at its operations in Queensland and the Illawarra region in New South Wales. The company’s share of production reached 26.31mt (million tonnes) which was an increase of 21.1%. Total sales of hard coking coal reached 19.13mt which was an increase of 25.7% and weak coking coal sales were higher by 12.9% to reach 5.53mt. Meanwhile, thermal coal produced by BHP Billiton recorded an average price of US$60/t FOB which was a decrease of 18.9%. Sales volumes were higher in Australia and South Africa, recording an increase of 3.2% and 14.1% respectively, to reach 10.01mt and 17.05mt. Market conditions were not, however, the reason for a decrease in sales from the company’s Cerrejo´n operation in Colombia. This was attributed to low rainfall, and a decrease of 6.6% to 5.81mt was recorded.

In contrast to BHP Billiton, Rio Tinto produced less coal across its operations in 2014.Australian hard coking coal production was 8% lower at 7.1mt but this was due to the company concentrating on its thermal coal operation at the Hail Creek mine, and a longwall change at the Kestrel mine. Production of semi-soft coking coal reached 3.2mt in 2014 which was a decrease of 17%. Overall production from Rio Tinto’s Australian operations reached 21.5mt in 2014. This was a decrease of 4% compared to the previousyear. Meanwhile,RioTinto has announced that sustainable returns are to be delivered to shareholders in 2015. The company has also declared a significant increase of its managed thermal coal reserves and resources in the Hunter Valley. Ore reserves increased by 546mt from 1,331mt to 1,877mt. Total mineral resources exclusive of ore reserves increased by 369mt, from 2,349mt to 2,718mt.

Bandanna Energy in Queensland is in administration and its assets are due to be sold this year. The Springsure Creek thermal coal project and proposed 4mtpa (million tonnes per annum) stage 1 mine was due to begin production in 2015 or 2016. Valuations are being carried out by the administrators now.

Looking at events around the coal world in 2014, in Mozambique, Japan’s Mitsui is to invest almost US$1bn in Vale’s coal projects in the country. The trading house will pay US$450m for a 15% stake in the Moatize mine and will invest US$188m in its development. A further US$313m will be paid for a 50% stake in the Nacala rail and port project. Some 3.8mt of coal was produced in 2013. Earlier in 2014, Rio Tinto sold its Mozambique coal assets for US$50m.

In Russia, Koks is understood to have been exporting 20kt of metallurgical coke to India in January. The weak international market had seen trade in Asia stop last year, but the resumption could start to affect other buyers including those in Ukraine.

In Ukraine, there have been reports that an employee of Ukrinterenergo who signed the 1mt deal for South African coal in 2014 has been arrested. The Prosecutor General is understood to be investigating the deal which is reported to have involved Ukrinterenergo and Tsentrenergo, and Steel Mont Trading.

In Canada, plans to double the capacity of Ridley Terminals to 25mtpa by the end of 2015 have been delayed by up to five years. Depressed coal prices and lower interest in exporting to the Asian markets have been attributed to the decision. In the ten months to 31 October, some 4mt of coking coal was exported through Ridley, which was a decrease of 40% compared to the 6.6mt recorded in the same period last year. Activity is reported to have been quiet recently, with capacity expected to have reached 18mtpa this year. This is considered to be sufficient until 2019 unless the market picks up substantially.

Russia’s exports through Baltic Coal Terminal decreased by 8.9% in the ten months to 31 October to reach 3.08mt. The decrease in shipments to Europe was attributed to the economic sanctions imposed on Russia by the European Union due to the situation in Ukraine. Total coal exports in 2013 reached 4.3mt.

In the United Kingdom, the Eggborough coal-fired power station has been sold to Energeticky´ a prumyslovy´ holding (EPH) of the Czech Republic. Eggborough Power currently owns the 2,000MW power station in NorthYorkshire and the sale must be approved by the European Commission. The price of the power station which supplies some 4% of the electricity in the United Kingdom has not been disclosed.

In news having a potential impact on coal consumption elsewhere, the Sendai nuclear power station in Japan was given approval to resume generating electricity. It will the first nuclear plant to be reactivated since the Fukushima disaster.

Amid the current market conditions, in Singapore, Peabody Energy is to close its coal trading office as part of its cost reduction process. The office was operating for just over five years.

Another development affecting coal trade in Asia is the Chinese government’s decision to impose new regulations on all imported coal from 1 January 2015. 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 (calorific value) lower than 3,941kcal/kg NAR (net as received), 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.

Back in October in China the government re-imposed import duties on coal. The rates were 6% of the value for bituminous coal, 5% for other coal, 3% for anthracite, 3% for coking coal, and 5% for coal briquettes. Coal market players had to wait for months for further clarity on the new regulations on low

quality coal. The smaller consumers appear to be the most affected, which could ease concerns from suppliers overseas who would be mainly marketing their coal to major users such as the power generators.

In the freight markets, Capesize rates have been very weak lately and the sector has been the worst performing in the dry bulk shipping market recently. This year saw the rates at their lowest opening level at the start of a calendar year since the Baltic Exchange started its assessments in the 1990s. The rate was US$3,580/day for 172,000dwt vessels.

Weak demand in the markets has coincided with low oil prices and on some main coal routes the daily rate is about half what it was a year earlier. Some rates are back at the lows seen after the financial crisis in 2008. Panamax rates have also been decreasing to half those seen a year ago. Capesize rates hit a low on 9 January of US$3,315/day but there has been some recovery since then.
There was a hike of US$4,000/day in round voyage rates in the Atlantic in mid-January which was an increase of 73%.

In recent market news, in Australia, BHP Billiton Mitsubishi Alliance offered several brands of hard coking coal to customers in India for December deliveries. Steel Authority of India and Vizag were offered the Goonyella reference brand at US$111/t FOB. Quality adjustments saw Peak Downs offered at US$114/t FOB, and Gregory at US$99/t FOB. The Blackwater Soft brand was discounted to US$93/t FOB according to reports from Queensland. The latest prices indicate a weak coking coal market, but with some firming compared to the November monthly deals between BMA and the Indian steel makers.

Peabody Energy is reported to have agreed the price of Q1 2015 deliveries of ULV PCI coal at US$99/t FOB with Korea’s POSCO. Tier 2 PCI product is priced at US$88/t FOB.These are at rollover from Q4 2014.

Japan’s Hokuriku and Tepco EPCs are reported to have purchased a number of cargoes of Australian coal following their tenders in late 2014. The price is rumoured to be about US$65/t FOB basis 6,000kcal/kg NAR for delivery during Q1 2015.

India’s Malabar Cements issued a tender seeking 30–40kt of coal. Specifications included CV 6,300kcal/kg GAD (min) and delivery was required to Cochin port. MMTC also issued a tender seeking 1mt of coal with CV 5,700kcal/kg GAD (min).

In Korea, Komipo issued a tender seeking 585kt of coal for delivery in three Panamax cargoes plus three Mini Capesize cargoes. Coal specifications included CV 4,600kcal/kg NAR (min) for the former quantity, and 5,700kcal/kg NAR (min) for the latter. Delivery is required during January to March 2015. Meanwhile, the Korean Gencos have awarded the business following a tender, with 440kt of material with CV 4,600kcal/kg NAR or delivery in Q1 2015 being priced at about US$58/t FOB adjusted to basis 6,080kcal/kg NAR. Another 780kt of material with CV 5,800kcal/kg NAR for delivery in Q2 2015 was priced at about US$59.80/t FOB adjusted to basis 6,080kcal/kg NAR.

Kospo issued tender KOSPO- Coal-2014-SMT10 seeking 80kt of bituminous coal with specifications including CV 5,700kcal/kg NAR (min). Delivery is required in a Panamax vessel during 1–31 March 2015.

In Taiwan, Formosa Plastics Group issued two tenders seeking an unspecified quantity of coal with CV 5,850kcal/kg GAR [gross air dried] (min). Delivery is required during 1 January to 28 February to Houshi port in China. One tender requested offers in US dollars and the other in Chinese  currency. Meanwhile,Taipower awarded the business to Noble (five Panamax cargoes), Mercuria (1), and Vitol (1) following a tender. A total of 525kt of Indonesian coal with CV 5,500kcal/kg GAR was purchased at prices believed to be in the range US$78.97–79.67/t CIF (cost, insurance, freight) evaluated.

Delivery is required during December to May. Formosa Plastics Group has issued several tenders seeking an unspecified quantity of coal. One required coal with CV 6,000kcal/kg GAR (min) for delivery in Capesize vessels to Mailiao port in Taiwan during 15 January to 10 March. Four tenders sought coal with CV 5,850kcal/kg GAR (min) for delivery in Handysize vessels during 1 January to 28 February. Two of these required delivery to Ningbo in China, and two to Shanghai Luojing port.

In Europe, market players have been discussing the impact of the annual winter freeze on coal supplies from Russia. The United Kingdom has been a major importer of Russian coal over the past year, but over the coming months any 

spot market activity will focus on other supplier countries to satisfy needs. Traders are believed to have been assessing the position in Colombia and the USA, but South African coal is also of interest. Delivered prices into Europe are low at present, and buyers are understood to have been seeing prices below the US$60s per tonne basis 6,000kcal/kg NAR level. The slump in price is likely to have affected a number of traders who may have taken a position a few weeks earlier, believing the market to have bottomed only to find further declines in the price of coal and freight.

Over in Colombia,The National Environmental Licences Agency is understood to be looking to speed up the process of issuing mining permits to new applicants. The permitting process could be completed in well under six months under the new plans, compared to more than a year in more recent cases. Meanwhile, difficult market conditions have led Australian coking coal developer New Age Exploration to end its JV agreement with Aurora Energy to develop the Terranova coking coal project in Colombia.

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 is level with 2013. The impact on illegal mining will be interesting to watch, and is likely to affect the market. In corporate news in Indonesia, Bumi Resources reported that revenue decreased by 17.3% or nearly US$500m to US$2.19bn during the first nine months of its financial year. Costs were reduced however, and net profit grew to US$13.3m.

In Malaysia, the new Manjung coal- fired power station has been linked to the national electricity grid. An increase in coal imports for Tenaga Nasional Berhad of up to 3mtpa is expected to be required when the plant reaches full output.

The Russian government published data indicating that the coal sector is doing very well amid the economic sanctions imposed on Russia over the Ukrainian situation in 2014. Total production is reported to have reached 251.2mt during the first nine months of 2014 which is only 0.7% lower than in the same period in 2013. Exports are said to have increased by 11.3% during the nine months to reach 113.27mt and deliveries increased by 2.1% to reach 233.1mt. The industry even appeared to be accelerating its growth lately, with production in September reaching 30.13mt which was 7.4% higher than in the same month in 2013. Exports in September were reported to have reached 12.33mt which was 3.1% higher than in 2013. Deliveries increased by 7.9% to 27.21mt.

As 2015 gets under way it is once again unclear as to how the year will develop for all those involved in the coal chain around the world. The volume of trade remains high despite the seemingly depressed markets. This at least seems likely to continue, and it is those on the sidelines of the industry who will benefit as players continue to meet up at various events around the world on a regular basis to try to make sense of the situation and to sign more deals at bargain prices. With coal prices and now oil prices at such low levels, those on the production side can only be hoping that the direction the markets can take over the course of 2015 is up. 

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.