Orlando, Florida — Volatility in the global thermal coal market is the new constant as the Northern European delivered price becomes redundant and demand centers change, requiring US producers to begin to adapt their export strategies, Javelin Global Commodities CEO said Thursday.
“Exports are being affected by a supply push on one side and a demand pull on the other,” providing a strong opportunity to build the export profile of the US, Javelin’s Peter Bradley said at the Eastern Fuel Buyers Conference in Orlando, Florida.

More coal-powered generation growth is entering the global market as countries in Southeast Asia, the Middle East and West Africa build coal plants at a higher rate than Western countries are getting rid of them.

Bradley noted as examples Pakistan building a 15-MW, coal-fired power plant and receiving its first proper delivery, along with a new 6,000 MW coal plant being built along the Suez Canal.

US COMPETITION

Competing with the US will be Russian coal as the country’s exports begin to see the most growth in the global market, Bradley said.

Russian exports have grown 3%-5% each year over the past few years, and are expected to continue to grow at that rate, he noted, adding that the country has invested a lot into ports and rail, particularly in the east.

On the other hand, Indonesian coal exports will peak this year and then begin to go down as the country builds its coal fleet and uses its domestic production.

Within US basins, Central Appalachian coal will struggle the most in exports as it competes with the Russian exports into Europe and the Middle East.

Higher sulfur Illinois Basin and Northern Appalachian coal, on the other hand, will compete well in Europe and Asia, Bradley said.

NAPP coal, he noted, is becoming an Asian product as European demand dies.

Asian buyers, he said, are changing global demand dynamics as they tend to buy spot rather than term-contracts, unlike European buyers.

The coal market has become a “huge map of volatility,” and “it is here to stay,” Bradley said.

“The biggest problem going forward is not moving coal, but finding new homes for high sulfur coal,” he said.

NORTHERN EUROPEAN DELIVERED PRICE STRUGGLING

The global coal market is becoming much more focused on the Pacific region, but “unfortunately benchmark hedging is all about the Atlantic and Europe,” Bradley said, emphasizing the lack of liquidity in the European market.

“API2 is becoming less and less relevant for exports,” Bradley said. “The market needs a hedging profile today, but how do you make it?”

In prior years when the API2 dropped exports also dropped, but the correlation is weakening, Bradley said. When the API2 dropped about $40/mt, Northern Appalachian dropped only $5/mt-$10/mt.
IMO 2020

Producers, though, need “discipline,” he noted. There needs to be more consolidation in the industry, especially as demand pulls back. “Learn to crank back production at times,” he said, emphasizing the need to deal with far more uncertainty.

As the US market faces a changing dynamic, it will become a “two-tier system” as producers build mines purely for exports, Bradley said.

IMO 2020 will have a massive impact on ocean freight, Bradley noted, adding that the importance of freight costs cannot be underestimated.

“Everyone has to adapt,” he said, adding that there will be higher pricing starting in Q1 2020 and “ocean freight will be super volatile through Q4/Q1 of 2020-2021.”

It’s important for exporters to lock in long term freight and manage the volatility, and essential for exporters to have lower ocean freight pricing because coal is moving longer distances.

Source:PlattsCOal

India’s thermal coal imports rose by more than 15 percent in the first three months of 2018, with Indonesia accounting for about three-fifths of total supplies, according to vessel arrival data from Dubai-based coal trader American Fuels & Natural Resources.

India’s rising coal imports are contributing to higher demand across Asia this year, which has pushed benchmark Australian coal cargo prices above $100/t, a price not seen at this time of year in more than half a decade.

Imports rose to 39.6-million tonnes during the three months ended March 31, the data from American Fuels, a supplier of coal from the United States, showed.

That is up from 34.4-million tonnes of thermal coal during the first three months of 2017, according to Indian government data which matched the data from American Fuels.

Government data for the first three months of 2018 has not been released yet.

The American Fuels figures are broadly in line with data from an Indian-based trading company reviewed by Reuters that showed imports were 37-million tonnes in the quarter.

India will likely increase 2018 thermal coal imports after two straight years of declines because of domestic logistics bottlenecks, regulatory changes and surging power demand.

Vasudev Pamnani, a senior trader at American Fuels, said India’s demand for coal with a higher calorific value, most of which has to be imported, was increasing since buyers want more energy from the coal they purchase to offset higher prices and the logistical problems, mainly railway delays.

South Africa was the second-largest source of foreign coal during the first quarter, supplying about one-quarter of the total imports, with the United States and Australia being the next largest sources, the data showed.

Adani Enterprises, India’s largest coal trader, accounted for about one-sixth of all the imports, purchasing about 6.51-million tonnes during the period, the data showed.

The Tata Group imported 5.23-million tonnes of coal during the period with Swiss Singapore, part of the Aditya Birla Group, taking in 2.92-million and JSW Group bringing in 2.48-million.

The companies did not respond to requests for comment.

The ports of Mundra, Krishnapatnam and Kandla handled about the two-fifths of all of the imports, according to American Fuels.

EDITED BY: Reuters