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World Coal
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January 2016
Industry View
Industry View
O
ver the next five years, the global
coal industry is expected to
witness a fundamental structural change
to the seaborne market: a move away
from Chinese led demand growth. The
last 10 yr have seen significant growth
in the global seaborne market. But with
global production seeming to have peaked
in 2014, serious issues remain as to its
sustainability.
The majority of global coal reserves are
located in the US, followed by Russia,
China, Australia, India and Germany,
which collectively account for 76.9% of the
global total. The major producers are China,
the US, India, Australia, Indonesia and
Russia, collectively accounting for 81.1% of
global production in 2014. Logically, this
means that a country, such as Indonesia, is
rather rapidly depleting its reserves. Over
the forecast period, these rankings will
remain the same, with little movement in
position, as had happened with the rapid
rise of Indonesia over the previous decade
when production increased from
154 million t in 2005 to 458 million t in 2014.
Other developed countries, such as
Australia and the US, may never find an
economic need to exploit their reserves.
For the two largest consumers of coal,
China and the US, serious efforts are now
being made to curtail coal use, which
contributed to global consumption
decreasing in 2014. Consumption in 2014
fell by 62 million t compared to 2013, and it
will likely decrease again in 2015. This
would be the first fall in consecutive years
in recent history. Efforts to curtail
consumption include increased
environmental protection regulations and
the US government’s plans to decrease
overall coal consumption by 180.4 million t
and by 2.2% in electricity generation in 2015
over 2014. The Chinese government has
also initiated an ambitious campaign to
diversify its energy sources, consolidate its
coal mines and cap consumption,
announcing various coal quality restrictions
and a ban on new developments of
coal-fired plants.
Delving deeper into Chinese coal
production, over the last decade global
production has continuously increased,
mainly due to increased production in
China. Yet, Chinese coal production
decreased to an estimated 3.59 billion t in
2014: the first fall registered since 2000.
Most Chinese coal mines are located in
Inner Mongolia, Shanxi, Shaanxi and
Xinjiang. In 2014, coal output in Inner
Mongolia fell by 12% to 123 million t, while
production in Shanxi was relatively flat
increasing by just 1.5% over 2013. Since the
state-owned enterprises account for
approximately 62% of total domestic coal
production, both provincial and central
governments have initiated measures to
support domestic industry, including a
reduction in provincial-level mining fees
and royalties, the imposition of an import
tax of 3% and 6% on metallurgical and
thermal coal respectively and a reduction in
export tax from 10% to 3%.
Without robust demand growth from
China and the developed economies, there
is likely to be little support for prices.
Hence, the world is unlikely to see a return
of US$100/t prices for thermal coal over
the forecast period; prices are instead
expected to stay around US$60/t FOB
(Newcastle 6700 GAD) to 2020. The net
effect of prices at these levels will be that
export-oriented countries, such as
Australia, Indonesia and Colombia, will
have to focus on reducing operating costs
to stay competitive in the seaborne market.
These countries will increasingly close their
higher-cost smaller coal mines, with large
expanding opencast mines taking their
place.
Over the forecast period, global coal
mine production is projected to grow
moderately at a CAGR of 1.6% to
8.6 billion t in 2020. This very moderate
growth will be mainly driven by
developing Asian countries,
predominately India. In India, the
government plans to quickly increase coal
production and allow private investment
in the industry. The government’s decision
to reallocate all 204 coal blocks, which
were earlier declared illegal by the
Supreme Court of India in December 2014,
is projected to increase coal production to
over 1 billion t in 2020. Coal is a major
source of energy in the country; it has the
largest share as a raw material for energy
production and an increase in population
is expected to drive growth in demand for
energy.
Other potential growth countries are
Russia and the former Soviet Union
countries. Recently, the Russian
government announced plans to increase
the use of coal as one of its primary energy
sources from 25% in 2014 to 27% in 2020. In
contrast, very few new large-scale projects
in the US, Australia and Indonesia,
announced in the boom era, are likely to be
developed over the next five years.
By 2020, the global coal market will
likely have shifted from its reliance on
China, with export-based countries having
stagnating production and a shift away
from the seaborne market for many coal
consumers, such as China. The one
exception to this will be India, which will
continue to increase in coal consumption
driving both domestic production and
import demand growth.
Note
This article is based on the report ‘Global Coal
Mining to 2020’ (Timetric; August 2015).
About the author
Clifford Smee is Lead Analyst – Mining at
Timetric.
GLOBAL TRENDS IN COAL TO 2020
Clifford Smee, Timetric, Australia
