World commodities markets had a difficult year in 2015 and the international coal industry remained in the doldrums as far as prices were concerned for shippers. Traded volumes, however, were still relatively high on a historical basis, and this has enabled the larger producers to continue to operate amid several years of low prices. Thermal coal spot prices have been falling during 2015 to their lowest since before the financial crisis, and for the first time since the 1990s global thermal coal trade has been moving into negative growth overall. Asia remains the dominant market for coal, but China has cut back substantially on its import requirements.

Thermal coal trade on a global scale is believed to have decreased in 2015 compared with the previous year, although final statistics have yet to be reported at the time of writing. A total of about 940mt (million tonnes) has been indicated, and this is the lowest since 2011 when the total reached 915mt. There have been regional variations, depending on energy policy, and in Europe the demand for thermal coal has been decreasing since 2012 when it reached 198mt. In 2015 the total is expected to have been around 183mt with demand from Turkey being stronger, while coal-fired power plant continues to be reduced in other countries. This has been particularly significant in the United Kingdom. In the Asian market, weaker demand from China has impacted trade, but several other Asian countries have shown firm requirements during 2015. Nevertheless, thermal coal trade is likely to have been the lowest since 2012 at about 720mt in 2015. In the Americas, demand has been steady overall in the region of about 37mt with the strongest market being in Brazil. North American markets for imported thermal coal remain weak. Thermal coal trade in the Pacific dominates the market with some 735mt expected to have been shipped in 2015. This compares with about 205mt traded in the Atlantic market last year.

While the oversupply situation in the thermal coal market continues, the outlook remains gloomy. Over the past year, the decline in demand from China has had a substantial impact on the coal industry and with knock-on effects around the world. China may have taken over 60mt less imported thermal coal in 2015 when statistics are finalized. Shippers of low CV coal from Indonesia have been greatly affected since China introduced its regulations restricting that product in its import mix last year. The Indonesian shippers have also been losing market share in India over the past year, with South Africa and Australia improving their volumes to that country. Although India has remained firm in its demand growth, this has also been slowing down during 2015. Korea, Malaysia, and Thailand have been more positive over the past year as their coal-fired power generating capacity increased, and they have been taking substantial tonnage from shippers in the region.

India is the main importer of thermal coal in the Asian region now, having moved into top place as Chinese imports slumped in 2015. Electricity demand has been the driving factor behind India’s growth in coal demand, but the rate of that growth has slowed over the past year. An increase of some 15mt in thermal coal imports is expected for India in 2015 when the final statistics are reported, and this equates to well over 10% growth compared with the previous year.

China’s imports of thermal coal were in more decline during the first half of 2015 but the rate of decline slowed over the remaining months of the year. Chinese imports are expected to have been in the range 130-140mt in 2015 which compares with 198mt recorded in 2014. This is a decrease of around 58-68mt or 30–34% compared with that in 2014 and is attributed to weak demand combined with an oversupply in China’s coal industry in 2015. The new regulations and associated penalties over the consumption and import of low quality coal have also contributed to this decline.

The stronger thermal coal markets in the Asian region in 2015 include Korea, Malaysia, Philippines, Thailand and Japan. It had been thought that the increase in the coal tax in Korea in July might have affected the volume of coal imported, but it appears to have had little effect, and imports have been
stronger. The Korean buyers in the power sector have also been seeking higher quality coals which has benefitted the exporters in Russia and Australia. A new record quantity of thermal coal is expected to have been taken 
by Korea in 2015, at an estimated 105–106mt which is an increase of some 3.5%. Although they are smaller markets, importing countries like Thailand have been seeing improved industrial sector demand and an estimated extra 2mt is likely to have been imported in 2015.

In Europe, the Mediterranean market has been fairly robust compared with the rest of the continent. After a few years of losing business in Europe, the South African shippers have seen improvement in trade there. The Colombians remain the key supplier to European buyers elsewhere, and other exporting countries including Russia and the USA have seen markets decline in 2015. Coal usage in the United Kingdom is in decline, and this is the case in other countries which were previously key markets including Poland and those in Scandinavia. This has been mpacting Russian exporters through the Baltic Sea in particular over the past year, but their markets through the Black Sea to Turkey remain more positive.

Overall demand for thermal coal in the Atlantic markets is understood to have declined by some 5–6mt last year. The only firm region was in the Mediterranean, with Spain, Portugal, and Turkey remaining keen on thermal coal usage as much of northern Europe is shrinking away from it. German interest has been steady amid the policy on nuclear power over the past few years, but the less favourable carbon tax position since last April has contributed to the further decline in demand in the United Kingdom. Coal imports could be down by around 45% compared with 2014 at less than 20mt. New coal-fired capacity is likely to have boosted urkey’s imports by some 4mt in 2015. Lower availability of hydro generation was boosting coal imports during the first half of 2015 in Spain and Portugal, with increases of around 2.5mt and 1.5mt respectively believed to have been taken by year end. The opposite was true in Scandinavia where higher hydro availability reduced coal demand in the first half of the year and into the autumn.

The main importers of thermal coal in the Americas, the USA and Brazil have seen different scenarios for coal over the past year. Oversupply in the domestic US market has led to lower demand even for low priced Colombian material, while lower availability of hydro power has increased interest from Brazil during most of the year.

Supplier countries to China have been adversely affected during 2015, with Australia and Russia seeing declines, but the Indonesian shippers of lower quality material have taken the biggest hit. As Russian supplies in the Atlantic have been lower, as well as US availability in a weak price environment, the Colombian and South African shippers have been able to ship more to the North Atlantic over the past year. India has remained steady for South African material in 2015.

The north European suppliers are expected to have exported 60–65mt of thermal coal in 2015 which is down from around 71.5mt the year before. Lower demand from the United Kingdom has had the biggest impact there, as well as low prices deterring some exporters such as Poland. Colombian exporters have increased their tonnage in Europe with around 75mt expected to have been shipped there in 2015, compared with less than 70mt in 2014. Meanwhile, the South African exporters are likely to have increased their export volume in the Atlantic to over 30mt in 2015 continuing steady growth there over the past few years. 

Morocco and Turkey have been important markets for them. Less than 10mt of thermal coal has been supplied to Europe by shippers in the Far East over the past year.

Russian thermal coal trade into the Pacific markets is likely to have been level in 2015 compared with the previous year at about 47mt. Firmer demand from some countries in the region compensated for the decline in requirements from China. The Chinese exporters themselves are expected to have shipped barely more than 1mt in the Pacific market in 2015.

Indonesian thermal coal exports in the Pacific and Indian markets declined in 2015 to reach an estimated 370mt which was more than 30mt down on the year before. The preference for higher CV coal in those markets, however, has boosted sales of Australian material by an estimated 5mt from the 200mt recorded in 2014. A similar situation has arisen for South African exporters supplying India in particular. Their export tonnage is likely to have been steady into the Asian market at about 47mt.

Colombian and US thermal coal exporters have found some business in the Pacific in 2015. A decrease in demand from Chile reduced shipments of Colombian coal by an estimated 1mt in the Pacific to about 6.5mt last year. US shippers found more business in India but their overall exports in 2015 through the Pacific are likely to be less than 10mt.

Pacific trade in thermal coal was about 685mt last year while that in the Atlantic was about 190mt. Both regions saw declines, of about 30mt and 6mt respectively.

Thermal coal prices have continued to slump amid the oversupply situation around the world and falling demand from China. The current market level has not been seen for some ten years with prices into Europe falling to around

US$50/t basis 6,000kcal/kg NAR (net as received) by last October. The slump in oil prices is likely to get deeper and will continue to influence coal prices to lower levels. The decline in China was driving global coal demand growth rates down and this has become negative for the first time this century. The rate of China’s decrease in demand slowed after the rapid withdrawal from some markets in the first half of the year, and some players believe the worst is now over. Indian buyers have also slowed their rate of demand growth to around half of that seen in 2014, and this has influenced markets and prices over the past year. By any standards, however, a growth rate of about 10% is still respectable, and India is behind most of the compensation for the slowdown in demand in China. The smaller Asian countries mentioned previously have also helped to cushion some of the blow from China’s decline in 2015.

While producers hope for an improvement in prices around the world, the oversupply situation has been persisting for a long time now. 

The only signs of some significant cuts in supply appear to be in three supplier countries — Indonesia, Russia, and the USA. Australia, South Africa, and Colombia continue to produce at increasing levels which will not help the supply/demand balance and therefore the price. At the latest rates, half of the decrease in global supply estimated in 2015 will have been made up for in 2016. The main swings are happening in the Pacific market, while the Atlantic supply continues to tighten by just a few million tonnes per year.

In corporate news, among the major mining companies, BHP Billiton reported that metallurgical coal production for the December 2015 half year decreased by 3% to 21mt. The company’s expectation for the 2016 financial year remained unchanged at 40mt. According to the company report released in January, Queensland Coal production declined in the  December 2015 half year as record production at the Blackwater, Daunia, Caval Ridge and South Walker Creek mines was offset by a ‘convergence event’ at the Broadmeadow mine. Normal operations have resumed at that mine, but completion of longwall mining at the Crinum mine affected the overall output. The Crinum mine will be put into care and maintenance

in the March 2016 quarter. Energy coal production for the December 2015 half year decreased by 3% to 19mt. The company’s forecast for the 2016 financial year remains unchanged at 40mt. Lower production for the December 2015 half year reflected continued drought conditions in Colombia at the
company’s Cerrejon operations, while the miner’s operations in New South Wales Energy Coal were affected by heavy rainfall. In the North American
operations, a 16% increase in Navajo  
Coal volumes due to higher customer demand was offset by lower customer requirements for the San Juan product. On 2 July 2015, BHP Billiton announced that the sale agreement for the San Juan Mine to Westmoreland Coal Company (WCC) had been executed. Regulatory approval has been received and the company expects the transaction to be completed in the March 2016 quarter.

Another of the major miners, Rio Tinto, reported that its hard coking coal production was 11% higher in 2015 than in 2014 at 7.859mt following improved production rates at the Kestrel mine according to their report published in January 2016. Fourth quarter tonnage was 16% higher than the same quarter of 2014 at 1.9mt due to the longwall changeover at Kestrel in 2014. Semi- soft coking coal production was 14% higher in 2015 compared with 2014 at 3.647mt, and 9% higher in the fourth quarter than in the same quarter of 2014 at 0.797mt, reflecting mine production sequencing at the Hunter Valley Operations unit in Australia. Thermal coal production in 2015 

was reported to be broadly in line with 2014 at 18.638mt last year (actually 2% lower). Fourth quarter production in 2015 was nine per cent higher than in the same quarter of 2014 at 5.182mt, due to increased production at the Hail Creek mine.

In 2016, Rio Tinto’s share of production is expected to be 7–8mt of hard coking coal, 3.3–3.9mt of semi-soft coking coal and 16–17mt of thermal coal. Thermal coal guidance includes a contribution from the Bengalla operation up to the expected date of divestment during the first quarter of 2016.

According to Glencore’s third quarter production report published in November, total own-sourced coal production was 102.7mt, an 8.8mt
(8%) reduction on the comparable period the year before. The reduction was attributed to the market-driven decision to scale back
production in Australia, as well as the closure of Optimum’s open-cut operations in South Africa. Reducing Prodeco’s production in Colombia to meet railing restrictions also affected
the result.

In Australia, production of 4.2mt of coking coal was 0.4mt (9%) lower than the comparable period in 2014 due to geological issues at the Oaky North mine. Australian thermal and semi-soft coal production was 44.3mt, 4.8mt (10%) lower than the comparable period in 2014. Glencore reported that this was due primarily to the market-driven decision to limit production in response to weaker markets. Within this overall net reduction, some mines increased production where appropriate, including Ravensworth North which continued its ramp-up as planned, and the Mangoola operation increased production in line with the environmental planning consent which has been granted.

In South Africa, production of 31.8mt of thermal coal was 2.6mt (8%) below the comparable period in the previous year, primarily due to the closures of Optimum’s opencut operations and the Middelkraal mine. The remainder of Optimum, which is in business rescue proceedings, is still producing coal. Increased production at Impunzi and Tweefontein has, in part, mitigated the overall reduction.

In Colombia, Prodeco produced 13.9mt, a 1.2mt (8%) reduction compared with the prior year period, due to scaling back to meet temporary night rail restrictions. Glencore’s share of Cerrejon production was 8.4mt, 0.2mt (3%) higher than the same period in 2014, which was impacted by production constraints related to management of dust emissions in drought conditions.

Given the depressed state of the commodities sector, and coal in particular, the freight market has been having a difficult time over the 

past year. New lows were reached in the freight rates during 2015. Some of the main influences on this have been the economic slowdown in China coupled with weaker demand for coal and iron ore in world markets. Supply of vessels has been high as well, and this has exacerbated the situation. The size of the bulk carrier fleet has been growing amid the weaker commodities market. Short-term trends saw freight rates recover from time to time over the year, but the historically low levels have persisted after some recovery during the March to August period last year.

There was some hope that China would add to freight demand due to its steel output but this has proved otherwise. Global demand for freight is believed to have declined overall in 2015. Market fundamentals remain consistent with an expectation of historically low rates for the foreseeable future, but some forecasters suggest there could be a recovery in overall demand in 2016.

Shipping analysts have reported that growth in the overall dry bulk fleet of some 2.5% to about 778 million dwt was achieved in 2015. This compares with a growth rate of 4.4% in 2014 when the fleet reached an overall size of 757.2 million dwt. Although there appears to have been a slowdown in the rate of growth, this will do nothing to help a recovery in rates under the current trade demand levels. Scrappings in the Capesize and Panamax fleets are believed to have increased in 2015 at some 30 million dwt. This compares with 17 million dwt scrapped in that sector of the shipping market in 2014.

The situation for coal as 2016 gets under way seems just as uncertain as it was this time last year. All players in the coal chain face continuing challenges just as they did a year ago and in some ways the situation is more gloomy than it was in early 2015. Coal trade volumes remained high last year in historical terms, despite the depressed markets. The low oil prices of a year ago were not expected to have plumbed new depths quite as much as they have since then, so it is unlikely that coal prices will rise in the short term. It is difficult to see how the market can get any lower, so there may be more reason to be optimistic for coal’s outlook this year, at least compared with last year. 

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.