(The opinions expressed here are those of the author, a
columnist for Reuters.)
By Clyde Russell
NUSA DUA, Indonesia May 17 Coal exporters may
be feeling more comfortable about their future as they see both
reasonable demand from Asia's top importers and prices which
appear to be stabilising at levels that allow for decent
This renewed optimism was evident at this week's Coaltrans
Asia conference on the Indonesian resort island of Bali, where
much of the discussion among delegates at the region's biggest
coal event was on plans for new capital spending and boosting
output at existing mines.
But - and there is always a "but" for the coal sector in
recent years - the exporting miners have to face the
uncomfortable reality that the two biggest importers in the
world, China and India, are now markets where policy decisions
are the main drivers, not supply and demand fundamentals.
This makes the long-term outlook for the seaborne coal
market hard to predict and therefore difficult to plan for,
presenting a tricky dilemma for coal mining companies in top
exporters Australia, Indonesia and South Africa.
The research consultancies a mining company may employ, for
example, provide what seem like reasonable demand assumptions
for China and India, based on current trends and likely future
But their assumptions can be rendered nonsensical very
quickly by unexpected and unpredictable policy shifts in Beijing
and New Delhi.
Last year's surge in China's imports is a case in point,
although this was a policy change that was positive for seaborne
Beijing mandated that domestic coal mines had to cut their
working days from 330 days a year to just 270, which drove down
supply, lifted local coal prices and led to a demand-driven
spike in imports, which jumped 25.2 percent to 255.5 million
tonnes for 2016.
Prices also surged, with the benchmark Newcastle Index
jumping 132 percent from January 2016 to a peak of
$109.69 a tonne in the week ended Nov. 11, although it has since
retreated to $72.42.
Coal imports in China, the world's biggest importer,
producer and consumer of the fuel, have continued to show
strength in the first four months of the year, gaining 33.2
percent over the same period in 2016, according to customs data.
This paints a very positive picture for the coal miners that
supply the seaborne market, and not just in Australia and
Indonesia, with smaller exporters such as Russia and the United
States also eyeing the Chinese market.
But policy risks are once again rearing their head, with
state radio reporting that China's government will curb imports
of low-grade coal as part of efforts to rebalance supply and
While new rules have yet to be published, any move to
restrict coal imports on the basis of their energy value or the
content of impurities such as sulphur could result in miners
taking a hit.
Indonesia is the main supplier of coal with a low energy
value, often used by Chinese utilities in blending with fuel
that has a higher energy content but also more contaminants.
Australia's coal tends to have higher calorific values, for
instance, but also contains more sulphur and ash.
These two countries supplied about 43 percent of China's
total imports last year, with imports from Australia alone being
almost three times more than third-ranked Mongolia.
China has also relaxed its restrictions on domestic miners,
with coal output rising 9.9 percent in April from the same month
last year, the second straight monthly gain.
Coal production was up 2.5 percent in the first four months
of the year at 1.1 billion tonnes, according to official
China has also suspended approvals for new coal-fired power
plants in 29 provinces, with authorities citing over-capacity
and flagging that more provinces may be added to the list.
The willingness of the authorities in Beijing to change
rules and regulations to meet shifting policy goals makes the
work of forecasting imports little more than a guessing game.
INDIA AIMS FOR ZERO
It's also becoming more challenging to work out the likely
path of imports in India, the second-biggest buyer of coal from
the seaborne market.
India briefly became the top importer in 2015, but China
regained the crown last year and on current trends looks set to
keep it, notwithstanding some recent policy decisions that may
lower China's imports.
This is mainly due to New Dehli's policy of trying to cut
out coal imports entirely and use only domestic production.
Like many policy goals in India, this is a heroic aim that's
unlikely to be achieved, especially given that the South Asian
nation is short of coking coal, used in making steel, a key
industry that New Delhi wants to expand.
However, the mere existence of an import target of zero
means it is unlikely that India is going to be a growth market.
Vessel-tracking and port data compiled by Thomson Reuters
showed India's seaborne imports fell 6.1 percent in 2016 from
the prior year to 194 million tonnes.
They appear poised to drop again this year, with the first
four months showing seaborne imports of 59.4 million tonnes, or
an annualised rate of about 178 million tonnes.
It's possible that if Asian thermal coal prices continue to
decline that India's imports may recover, but this is likely a
short-term scenario. The long-term picture is for state-owned
Coal India to keep boosting domestic output.
The main point for coal exporters is that their two major
markets in Asia are now inherently uncertain and risky from a
While there are pockets of good news from other importing
countries in the region, such as Malaysia and the Philippines,
it's questionable whether smaller importers can make up for the
risk of lower imports by China and India.
(Editing by Tom Hogue)