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Interview: Jim Nicholson, Senior Vice President - Asia, Argus Media

Jim Nicholson talks to us about relief for coal prices and the future of imports into India, plus Jim shares his thoughts on Coal India Ltd's billion tonne production plan.

The big story in India at the moment is Coal India Ltd’s billion tonne production plan. Do you think this figure is achievable?

Jim: The Indian government has set Coal India (CIL) some ambitious production targets, and even has a goal of reducing thermal coal imports to zero. However, CIL’s track record of failing to hit production targets means there is widespread scepticism, both in and outside India, about the company’s ability to hit 1 billion tonnes.  In 2015 so far, CIL has done very well. Imports have begun to fall year-on-year, after very strong growth in 2014 and the first half of 2015. Stocks have been rising at power plants and ports. But local coal demand has also been weaker than expected, with cement production and power generation both growing only modestly. And we should remember that CIL’s production targets are not entirely in its own hands – the company has struggled in the past with access to rail freight and to environmental permits for local mine expansion projects.

India was previously tipped to overtake China as the world’s largest importer of coal by 2017. Do you think this could still be possible given these recent developments?

Jim: Chinese regulations have turned against imported coal, with tougher quality inspections and higher taxes on deliveries from countries without a free trade agreement. Domestic energy policy and public opinion is pushing the government to produce cleaner electricity, while at the same time balancing the need to maintain employment in Chinese mines.  But these policy shifts don’t appear to have broken the importance of arbitrage pricing. Movements in Chinese domestic prices still affect the international markets, so we expect China to continue to import coal, albeit at reduced levels. So, both China and India will probably be importing less than many producers had hoped a year ago.

Coal prices around the world are remaining stubbornly low. Do you see any relief for prices in 2016?

Jim: There has been a lot of production shut in around the world – in North America in particular, but also in Indonesia. We are starting to see some reductions in Australia, which has benefited until now from a cheaper exchange rate, as has Russian coal. Some of the Indonesian production could come back relatively quickly if prices rally, and this will cap any upside to prices. If there is a rally in 2016, our independent consulting team don’t see prices rising much above 2013 levels.

You have been analysing the international coal market with Argus for over 10 years now. In your view, what is the biggest challenge facing the coal industry in 2016 and how can it be overcome?

Jim: The biggest challenge for the coal market remains the same as it has always been – to match supply and demand.  Price signals obviously help, but it’s the nature of the market that production tends to come in big lumps, while demand is often unpredictable and weather-driven. When prices fall, as we have seen over the past few years, it can take a while before we see a production response, with genuine cuts to coal output, because of efficiency drives, exchange rate moves and take-or-pay transport contracts which help to keep mines running at thin or even negative margins.  The lessons from the Atlantic Basin market are that pricing tools, such as hedging using derivatives, can mitigate some of the impacts from volatile pricing, and smooth out disruptions to supply and demand.

Which other topics are you most looking forward to hearing discussed at the 15th Anniversary Coaltrans India in Goa in March?

Jim: I’m looking forward to hearing first hand from Indian colleagues how the local market is likely to develop over the next few years.

You can hear more from Jim at the 15th Coaltrans India on 2 - 4 March in Goa, where he will chair a thermal coal buyers panel on 'What is the future of coal imports into India?'


This content is provided by Coaltrans Conferences for informational purposes only, and it reflects the market and industry conditions and presenter’s opinions and affiliations available at the time of the presentation.

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