Global seaborne coal market oversupply to be 10 m tons
Monday, 28 July 2014 00:00
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Reuters: The global market for seaborne thermal coal will be oversupplied by around 10 million tons this year, keeping prices below profitable levels for most coal producers well into 2015 or longer and forcing more mines to close.
Coal prices have halved over the past three years as a result of rising output from exporters including Australia, Indonesia, South Africa, Colombia and the United States and sluggish demand from both industrialised and emerging markets.
Thermal coal, or hard coal, is used primarily to generate power. It is traded globally and shipped by sea.
Many analysts have said oversupply is affecting coal markets, but pinning down the numbers can be difficult due to different ways of calculating demand, production rates and the quality of available data.
Traders and analysts estimate the oversupply in a range of 7 to 12 million tons, which is out of a volume of trade in hard coal that will reach almost 1 billion tons this year.
A number of traders say they expect oversupply to be 7 to 10 million tons in 2014, while French bank Societe Generale says the overhang could be as high as 12 million tons.
“I don’t think anyone knows, but it (oversupply) has got to be more than 7 million tons,” Ian Foy, head of energy management at British utility Drax, told Reuters.
“Each analyst has a different way of counting, and there are many gradations of coal quality, so forcing everything into one table has its limitations,” said Paolo Coghe, an energy analyst at Societe Generale.
While exact numbers are hard to come by, analysts agree that surplus coal will remain a problem in 2015 and 2016.
Societe Generale sees oversupply falling to around 7 million tons in 2015 and 5 million in 2016 as Chinese and Indian demand strengthens and soaks up more supply.
Bank of America Merrill Lynch says the surplus will continue to plague the market until producers curb output further, probably in 2016.
Global demand growth has been slowing. The International Energy Agency has reduced its forecast for average coal demand growth to 2018 to 2.3% a year from 2.6%.
In Asia, demand growth is slowing. In China, slowing economic growth is adding to political pressures on businesses to use more natural gas than coal – the dirtiest fuel for electricity generation - due to choking pollution in the biggest cities.
Overall Asian demand, however, could pick up slightly next year and start eating into oversupply. Also at some point, supply will fall as loss-making coal mines shut.
