2018 Global Thermal Coal May Swing Between $80 And $100

Global thermal coal markets are in the second wave of their peak-trough and, it seems, for the first time, the signals are loud and clear. The outlook is strong and demand in calendar 2017 is set to grow by an additional hefty 40 million tons (mt), in which China alone will contribute 25 mt. But it is not China all the way. There are incremental thermal coal-fired capacities coming up in other Asian countries such as South Korea, Taiwan, Malaysia, the Philippines and many others. On the other hand, supply is expected to grow by around 27 mt, which leaves a deficit of 13 mt this calendar. So, how will this gap be plugged? It will be mainly fed by swing suppliers from the United States and Russia, especially since the former likes the taste of higher pricing and comes into the market only when the rates touch above $80 per ton! But India is proving to be a damper. Had its coal imports not been on a decline, the demand side figure could have been pegged at 50 mt, reveals Rodrigo Echeverri Cardozo, Head of Hard Commodities Research, Noble Resources, to Madhumita Mookerji. Excerpts from a free-wheeling interview:

- Madhumita Mookerji

When we met around a year back, you were one of the few bullish analysts in the coal market… and your predictions turned out to be true! So, how have the global coal market dynamics changed since then? What is the scenario like with each major coal producing country?

We were in a relatively strong market one year ago. And, we were a lot stronger by November 2016, when global steam coal prices had exceed $100 per ton on the Newcastle index. And the market actually reached a high, then went back down and then when it reached somewhere around $70 per ton, it started going up once more. Prices are at around $100 per ton again! We are thus in the second wave of this peak through. Prices have broadly remained high and the availability of coal has remained relatively tight.

Global demand is growing again – and that is an important pointer – and we actually expect the international coal market to grow by an additional 40 million tons (mt) this year on the demand side. The present volume is 900 mt, thus it would be a 4 percent growth.

Last year, the market was flat – in fact, 2015 and 2016 were similar. Last year, demand was at around 900 mt .

And what factors do you attribute this 4 percent growth to?

First and foremost, it is China. In this additional 40 mt pie, the share of China’s demand will be around 25 mt, while India’s share is going down. India’s share has dropped by 15 mt this year till August, though I feel demand from the country would be better in the fourth quarter (Q4) of October-December compared to the same quarter last year since, of late, it is buying a lot of the Indonesian material. In fact, Indian buyers are quite active at present in the Indonesian market .

However, we feel, the calendar will end with a 13 mt drop in total import demand for steam coal by India.