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Interview: Deepak Kannan, Managing Editor, Thermal Coal, Platts

Deepak Kannan talks to Coaltrans about a recovery in global coal prices, India’s role in driving international coal prices and China as a net exporter of coal.

People have been looking for a recovery in global coal prices for a long time now. Is there any sign of things picking up in 2016?

The market still remains oversupplied although we have heard that several miners in Indonesia, especially the small to medium-sized ones, have cut output significantly as they counter weak demand and sagging prices. Chinese demand has been muted this year, falling about 30% so far this year and that has had a major impact on prices. Chinese demand for imported thermal coal is expected to remain slow in 2016 as the country itself has a huge production and domestic prices are quite attractive to end-users. The Platts China Coal PCC 1 price assessment, representing FOB Qinhuangdao 5,500 NAR material, has slumped more than 8% in the past four months, according to Platts data. Comparatively, domestic material still makes more economic sense to Chinese end-users than imported coal. Demand from other markets like the Philippines, Thailand and South Korea have been stable but there is no significant additional requirement being seen for coal in the coming year. So coal prices are expected to remain under pressure until the oversupply situation is addressed. A positive sign is that China has plans to reduce the import tax on bituminous coal supplied from regions like Australia and South Africa to 2% from 6% currently. That might provide a boost to imports, but again any pick up in imports would depend on the arbitrage window vis-à-vis the domestic material.

What role will India play in driving international coal prices over the next year?

Now that India has overtaken China as the world’s largest importer of coal, there are a lot of expectations from coal suppliers from India. But India itself has huge reserves of about 300 billion mt and its production is just about 500 million mt /year. Comparatively, with similar reserves, China’s production is close to 4 billion mt/year. So you can see that India has great potential to boost up its production significantly. The government of India has laid out ambitious plans to double its coal production to about 1 billion mt by 2020. And we have been hearing that domestic material availability has increased quite significantly this year. So going into next year, market expectations are that Indian demand for imported coal might likely remain flat year on year. That means only a production discipline at various exporting countries could possibly provide some support to prices.

One of the big question marks for the industry at the moment is China. Do you think it will become a net exporter of coal in 2016?

China has already reduced its export tax to 3% from 10% this year. China has a humungous coal production and its economic growth has also slowed. So it makes sense for China to restart exports. We have also heard that several Chinese coal miners visited South Korea, Japan and other countries to review the possibility of exports. However, it’s still too early to say if China would become a net exporter of coal next year, but nothing can be ruled out.

At the 15th Coaltrans India in March, you will be speaking about the rebalance of supply and demand. Where in the world are the biggest oversupply problems and can they be resolved?

Indonesia is the major exporter of coal and market participants expect the production cuts to start from there. Indonesian production was close to 425 million mt in 2014 but that is expected to fall to about 350-400 million this year. Some of the industry observers feel that Indonesia has to cut nearly 100 million mt in production to see any meaningful rise in coal prices. On the other hand, Australia is maintaining its production levels, with several tonnages being exported to Japan, South Korea, China and even India. With dwindling Chinese imports and looming risks for imports in India due to rising domestic production, industry observers feel that supply has to be cut in order to balance the demand-supply situation.

Which other topics are you most looking forward to hearing discussed at Coaltrans India?

How logistics issues are being addressed in India in terms of railway rake availability, new rail lines, and progress on inland water ways.

You can hear more from Deepak at the 15th Coaltrans India on 2-4 March in Goa, where he will be speaking about the rebalance of supply and demand.

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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