Coal: Global demand weakens
Katherine Hermawan, Analyst
While coal prices were stickier on the way down compared to other commodities like oil, the Newcastle price now suggests coal prices have begun to play catch-up, following trends in oil prices down by 14 percent week-on-week and 21 percent since the start of the year to US$65.32 per ton.
These time-lagged price movements should only be temporary and are caused mostly by the carried over impact of completed contracts.
The recent plunge in coal prices have been caused by the build-up of Australian metallurgical coal supplies, entering the global thermal coal market, hence intensifying competition further.
This will place Australia as Japan’s top supplier of choice not only due to delivery reliability but also due to Japan’s preference for high calorific value (CV) coal.
It is worth highlighting that Japan, accounting for around 23 percent of Indonesia’s total coal exports, is our largest coal importer.
According to ABARE (the Australian Bureau of Agricultural and Resource Economics), Japan as the world’s largest coal importer is forecast to have thermal coal imports fall by at least 3 percent to 130 million tons in 2009 as the capacity utilization of several nuclear power plants recovers following breakdowns or maintenance in 2008.
The nuclear power plant utilization rates of Japan’s 10 nuclear power companies rose to a five-month high of 67.2 percent in January 2009 to help meet peak winter demand, according to Japan’s Ministry of Economy, Trade & Industry (METI).
Higher usage of energy produced by nuclear power plants will cause less energy usage from other sources, including the coal-fired power plants.
This plays a crucial role in reducing global coal demand significantly this year.
The coal price index should be pressured downward further within the near future, especially after the outcome of current on-going negotiations between Japan and Australia on coal- contract renewals.
From another point of view, the Chinese government has experienced rising coal stockpiles and has decided to issue a bigger than expected second batch of coal export quotas in 2008 ranging up to 15.9 million tons compared to the 0-10 million tons bracket adopted before.
Going forward, with China having closed down some 100,000 factories last year due to the economic slowdown, we expect China’s coal exports to rise in 2009.
It is worth highlighting that China is the world’s biggest coal producer with total 2008 production at 2.5 billion tons (45 percent of total global production).
This is expected to rise to 2.7 billion tons in 2009.
Thus, the impact of China’s slowing domestic consumption this year will undoubtedly add pressure upon an already crowded global coal supply position, particularly as major exporters are still targeting production growth of 3-7 percent per year.
Meanwhile, Indonesia, the world’s largest thermal coal exporter, is still targeting optimistic 2009 coal sales of 280m tons, a significant expectation of 12 percent year-on-year growth compared to 2008.
On the flip side, South Korean power companies such as Korean Midland Power Co (KOMIPO) and Korean East West Power Co (KEWESPO) are at present being offered higher coal volumes than what they seek in tenders with many offering sales prices at $3-$4 per ton lower than current market prices.
KOMIPO stated that it saw bidders from as far afield as South African and Canada, implying that producers will have to work harder to sell coal as demand weakens while supply steadily increases.
In 2009 coal producers should mitigate higher risk exposure to the volatile overseas coal market by securing more of their sales volumes in long-term contracts rather than spot sales.
Unlike in 2008, when spot sales provided producers with higher sales prices, 2009 demand is relatively weaker resulting in much lower prices.
Since its recent peak, coal prices have come down 66 percent to about $65 per ton at present.
We expect prices to decline further to as low as $53 per ton in 2009. Thus, domestic-sales oriented coal producers can anticipate less market pressure and lower risk exposure in 2009, based on adequate global supply and weakening demand.
The writer is an analyst at Bahana Securities
Indonesian coal output to edge up, exports seen flat
NEW DELHI, March 4 (Reuters) – Indonesia’s coal output in 2009 is expected to edge up from last year, the head of a miners’ body said on Wednesday, and global demand for the fuel was unlikely to dive as China and India helped shore up consumption.
Jeffrey Mulyono, chairman of the Indonesian Coal Mining Association, said coal prices, sharply down from their peak in July, were “normal” now and he saw little downside.
“Of course, psychologically it may seem that energy demand will decrease. But in reality it is not so much,” Mulyono said on the sidelines of a coal conference in the Indian capital.
“We’re thinking of India and China still. They’re developing their energy supply to the public and to the industry.”
Mulyono estimated Indonesian production at 250-260 million tonnes this year, up from 238 million tonnes a year ago.
Domestic demand would rise to 68 million tonnes from 50 million tonnes in 2008, he said, leaving overseas sales from the world’s top exporter flat on the year.
Demand for thermal coal is expected to shrink in 2009, with electricity demand taking a hit from the global economic slump.
Japan, the top buyer, is expected to buy 10 million tonnes less, while sales to world No. 2 importer South Korea are seen 6 percent lower by an Australian government agency
But China, the world’s largest consumer, is likely to see only a marginal decline in imports but India would buck the trend as it raises coal-fired generation capacity, the agency said.
This has reflected in thermal coal prices in Australia, a benchmark for Asia, dropped to a near 20-month low of just above $65 a tonne at end-February, below the $201 a tonne quoted in July, as surpluses build up during a period of weak demand.
But Mulyono said the prices benefited both producers and buyers.
“Today’s is normal pricing. The producer can make a profit and the buyer can still survive,” Mulyono said. “Today’s is a very convenient pricing level.” He estimated the production cost of Indonesian coal at an average of $35-$40 a tonne.
When asked about competition from South African coal for the Asian market, Mulyono said: “Freight is now so cheap the African supplier can easily supply up to India. But if they are talking of supplying to China or to Japan, there is still expensive transport costs.” (Reporting by C.J. Kuncheria, Editing by Mark Williams)
Chinese coal price likely to drop by 20%
China International Capital Corporation Ltd released a report that China’s coal prices will probably drop 20% towards its equilibrium on the grounds of a recovery in coal production utilization rate and weakened demand. CICC holds that there is a great profit margin for coal enterprises at the current price, and so will very likely resume production.China’s steel plants will probably further cut production due to increasing steel inventories and falling steel prices since February 2009, which will further affect coke demand. However, coal enterprises in China’s major coal producing areas including Shanxi, Shaanxi and Inner Mongolia Autonomous region hold that coal prices wouldn’t slide so far as in the fourth quarter of 2008.Coal output from major coal producing areas accounts for half of the nation’s total, while trading volume takes 71%.CICC predicted that the pre-tax power coal prices at Qinhuangdao Harbor would drop 28% in 2009, while pre-tax contractual coal prices will remain unchanged. Average coking coal prices of large coking enterprises will decrease by 24% while that of small and medium enterprises will fall 20% in 2009.(Source: China Mining)
China’s Datang says breakeven coal price 400 yuan
BEIJING, March 4 (Reuters) – China Datang Corp, the parent of Datang International Power (0991.HK) (601991.SS), can break even when coal prices are about 400 yuan ($58.46) per tonne, general manager Zhai Ruoyu said on Wednesday.
“We can solve the problem of losses if coal prices fall to around 400 yuan per tonne,” he told reporters in Beijing.
Datang, along with other major Chinese power firms, has been locked in negotiations with coal miners for months about a term price for 2009. But Zhai said he was not worried about the failure to sign a deal because some coal firms were still supplying even though no new contracts had been agreed.
He said Datang would increase generating capacity by 13 gigawatts to more than 90 gigawatts this year. ($1=6.842 YUAN)
(Reporting by Jim Bai; Writing by Tom Miles, Editing by Nick Macfie)
Time to face up to reality
Article from: The Australian
THERE is no point pretending Australia is not now in recession. This is not talking down the economy — it’s facing up to the real world.
Like the deficit word, getting over “recession” should allow Australia to wake up to the more pressing issue of how to contain the fallout from the global financial crisis and promote recovery next year.
Exploiting the nation’s strengths could allow us to keep doing better than the rest of the world. Not dealing with our vulnerabilities could cost much more than commonly understood.
The economy’s 0.5 per cent contraction in the wake of the global crisis has exposed the limits of government spending to stimulate household consumption.
The limit to this easy option switches the focus to the Rudd Government’s policy weaknesses: reimposing pro-union workplace rules on business, bidding up more taxpayer-funded entitlement spending and slapping on new carbon imposts amid a manufacturing downturn.
It was always unrealistic to think Australia could be so insulated from the biggest global financial crisis since the 1930s.
The mid-September Wall Street eruption occurred in Australian real time. Frightened households wisely ignored pleas from Kevin Rudd and Wayne Swan to splurge the $8 billion-plus of pre-Christmas handouts, instead paying off their debts and lifting savings to their highest rate in nearly two decades. With profits being hit, business cut back on working hours, inventories and production. GDP would have fallen even further without the budget stimulus. But this consolation was bought with borrowed money that will have to be repaid. The disappointing return should put a brake on any further budget splurge, especially on top of the second $42 billion fiscal stimulus, which kicks in this month. Amid a global credit crunch, this is risky business for a country with a large foreign debt. There are other reasons why the Australian economy has held up so far compared with the US (down 1.6 per cent in the quarter), Britain (down 1.5 per cent) and Japan (down 3.3 per cent). Our banks are solid. Monetary policy retains traction. The budget entered the crisis in surplus. And the lower Australian dollar has provided a competitive boost. The December quarter was also buoyed by the lingering resources boom momentum, with business investment in new capacity rising 1.1 per cent in the three months to be 12 per cent up on the year. And China and Japan were still paying high contract prices for our coal and iron ore exports. This is recession territory, although the Government will cling to the hope of dodging the definition of two consecutive quarters of economic contraction. GDP rose a piddling 0.1 per cent in the September quarter, fell 0.5 per cent in the December quarter and is likely to drop again in the current quarter. Outside the farm recovery, non-farm GDP went backwards 0.8 per cent in the December quarter, after falling for the previous three months. In per capita terms, GDP has decreased three quarters in a row to be down 1.4per cent on a year ago. The good news is the economy has entered recession without a buildup of unsold inventory. This means business will need to restock when demand picks up. But we’ve yet to see the bad news on collapsing business investment, weaker export volumes and sharply lower contract prices for coal and iron ore exports