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Interview: Kshitij Saxena, Director - Sales - South East Asia & India, Mechel Carbon AG

Kshitij shares his opinion on the price rally in both coking and thermal coal, on the long-term impact of the downswing on global coal trading dynamics and on the greatest challenges facing the coal industry going into 2017.

Coaltrans Conferences (CC):
We are currently seeing a price rally in both coking and thermal coal. Do you think that this rally is sustainable or do you think we will see a price correction at some point in 2017? Are you optimistic about the future for coal? 

Kshitij Saxena (KS): The price rally will continue until end of the year due to re-stocking of coal in view of winter season in China and Europe. By February or March next year, the price shall correct as China is returning back to 330 days production from 276 days production however the real effect will be seen from February next year. By that time, winter season buying will also slowdown.

Prices will be more stable in 2017 since China has capped the minimum and maximum price level of steam coal which will reduce the volatility in China Market as well as International Market.

KS: I am optimistic about future of coal. World primary energy will grow at 0.98% CAGR in next 20 years. Coking Coal seaborne trade will grow at 0.82% CAGR by 2020. In next 4 years seaborne coal trade will grow 0.23% CAGR as projects under construction in South East Asia and India will come into production. Overall world thermal coal demand will be positive in long run and expected to grow at 1.16% CAGR.

CC: What do you think has been the long-term impact of the downswing on global coal trading dynamics? How has Mechel responded to the downturn? 

KS: Market dynamic are changing from over supplied market to balance market. Coking coal seaborne trade will grow due to strong demand from India & Japan and seaborne trade will grow at 0.8% CAGR by 2020. On Thermal coal, the trade will grow at 0.14% CAGR in next 4 years. Volatility will reduce since no major mining projects coming up except Adani project in Australia.

Mechel has both domestic market and international market to sell it’s products. Last year Mechel sold more coal into domestic market than export market as domestic demand was strong. Mechel production increased by more than half a million tons last year. This year Mechel’ exports will be higher than last year as export prices are also supportive.

A key reason behind the current price rally in coal is the actions of the Chinese government. The Chinese have been more cautious about increasing metcoal production than thermal coal - do you think that the underlying price fundamentals for the metcoal surge are stronger than thermal coal?

KS: Chinese government objective is to cut the coal production by 500 million tons by 2020 which is majorly the steam coal. China coal market is over supplied and Chinese mines are not making profits.  China government wish to balance mining industry, power industry and steel industry so that profits can be shared across all the industries.

China also have over capacities in steel & power sector and aims to cut the capacities in these sector as well. Coking Coal account 75% cost of steel production if coking coal prices remains high then profit making steel mills will also turn into losses. So increasing domestic coking coal production is very much needed.  Price rally in met coal is not just because of production cut in China which is only one factor.
The other cause is reduced supplies from Australia (due to floods, force-majeure and logistic issues) and transportation issues in the China.

Fundamentals of coking coal is stronger due to limited sources of coking coal. Demand of coking coal is always been steady. Reducing steel capacities from China will be offset by Indian new capacities in the pipe line.

Down the line met coal demand is growing steadier than fluctuating demand of steam coal. Seaborne trade of coking coal will grow at 0.8% CAGR by 2020 whereas steam coal seaborne trade will decline at 0.38% CAGR.

What do you see as the greatest challenges facing the coal industry going into 2017? Where do you see the most growth for coal?

KS: The challenge is keeping coal supplies under control.  As prices moving up, the major coal mining companies from coal exporting countries shall not ramp up the production else market will again end up in over supply in spite of production cut in China.

A balance approach is required by major mining companies before ramping up the production. Global trade is going to grow only 12 to 14 million tonnes in next 4 years (from 2017 to 2020) which is very thin line. Demand from India, Pakistan, Bangladesh, Vietnam, Indonesia and other Asian country will replace declining demand from developed countries and China.

CC: Finally, you’re speaking at Coaltrans Emerging Markets Asia next month. What subjects are you most looking forward to hearing about? 

The demand growth will be coming up from South East Asia and other Asian countries so would like to hear future development plans from these South East Asian countries including India.  On supply side, would like hear on China, Australia, South Africa and Columbia.

October 2016.

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.