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GRAPHIC-In shadow of OPEC's noisy oil cuts, Asia's miners quietly tightened coal supplies
November 22, 2017 / 7:08 AM / 25 days ago

GRAPHIC-In shadow of OPEC's noisy oil cuts, Asia's miners quietly tightened coal supplies

* Indonesia, Australia thermal coal output down from 2013 peaks

* At the same time, North Asian coal demand has risen

* Newcastle coal prices doubled between 2016-2017

* Outlook for 2018 is less firm as output rises, demand stutters

By Henning Gloystein

SINGAPORE, Nov 22 (Reuters) - Australian and Indonesian miners have quietly done in the last two years what OPEC has been shouting about: tighten coal markets and prop up prices.

The informal coal output reductions, unlike the official cuts in place since January led by the Organization of the Petroleum Exporting Countries (OPEC), are culminating right as Asia enters the Northern Hemisphere winter when heating demand peaks in January. Additionally, there are warnings a La Nina pattern that typically brings colder-than-normal weather to the Northern Hemisphere might occur.

In 2015, at the peak of the coal glut, Glencore, the world’s biggest thermal coal exporting firm, said it would start cutting exports by scaling back some open pit mining and deferring investments in Australia in order to tackle oversupply. Indonesian mines were quick to follow.

Production from Indonesia and Australia, Asia’s biggest thermal coal suppliers, dipped from almost 600 million tonnes in 2013 to 566 million in 2016, according to government and industry data.

Meanwhile, demand from North Asia’s main consumers China, Japan, South Korea and Taiwan has risen by 5 percent since 2015.

David Thurtell, resource economics manager for Australia’s Department of Industry, Innovation and Science said the country’s supply has dropped by between 1 million and 2 million tonnes this year, enough to “tighten up the market and firm up pricing against a pretty solid demand background.”

Asian benchmark thermal coal prices for Australian Newcastle cargoes have doubled since mid-2016 to highs of over $100 per tonne this year.

Shares of specialist miners like Glencore, Australia’s Whitehaven Coal, and Indonesia’s Adaro, have surged since 2016 on the higher coal prices.

WILL IT LAST?

While coal markets tightened during 2016 and 2017, a gradual increase in output may change that next year, analysts said.

“Prices will ease over 2018 and beyond as Chinese demand for coal falters and the global market is better supplied by increases in output from major producers,” BMI Research said in a note this week.

Indonesia, the world’s biggest thermal coal exporter, is increasing supplies after years of cutting back.

Pandu Sjahrir, chairman of the Indonesian Coal Mining Association, said this month he expected his country’s 2017 thermal coal exports to rise to 370 million tonnes from 365 million last year.

In Australia, output has dropped in part because of striking workers, especially at Glencore’s mines in the Hunter Valley.

Thurtell said this would spill into 2018, but added that by 2019 he expected production to rise to 251 million tonnes, up from 248 million in 2018.

With Asia-Pacific coal supplies edging up again, much will depend on demand, especially in China, the world’s biggest producer, consumer and importer of coal.

But, the country’s demand growth outlook is uncertain as the government switches millions of households to natural gas heating from coal to reduce air pollution and as the economy shifts toward less energy intensive industries.

Newcastle prices have already started dipping, slumping from $100 a tonne at the start of the month to $93.70 on Tuesday.

U.S. bank J.P. Morgan expects spot Newcastle coal prices to average $78.38 per tonne in 2018, down from $85.75 this year, according to its commodity outlook for next year released this week.

Reporting by Henning Gloystein in SINGAPORE; Additional reporting by Jim Regan in SYDNEY and Fergus Jensen in JAKARTA; Editing by Christian Schmollinger

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