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Interview: Vishal Thiruvedula, Senior Analyst - Supply Chain & Commodities Research, Thomson Reuters

We talked to Vishal Thiruvedula about Chinese coal demand, the impact of Donald Trump’s election on the US coal market, the risk of coal prices dropping to early-2016 levels again, and changes to coal trade flows.

You can hear more from Thomson Reuters at the 23rd Coaltrans Asia where Clyde Russell, Asia Commodities Columnist will be delivering a presentation on 'What changes are we seeing in coal import strategies into India and China?'

Plus, Thomson Reuters will be holding a complimentary Lunch & Learn session on 16th May.  Attend to discover how Thomson Reuters can help you gain critical insights into the global coal market. Learn more






Coaltrans Conferences (CC): What are the major changes to coal trade flows that we’re seeing at the moment? What are the main changes we should be looking for over the next 3-5 years? From which countries and regions are we going to see growth in the coal and coal-fired power industries? How will new markets impact intra-regional trade flows?

Vishal Thiruvedula (VT): The disruptions caused by cyclone Debbie to the rail infrastructure in Queensland that resulted in a supply loss of over 15 Million Tonnes increased coking coal shipments from United States.

In H2-2016 we noticed an uptick in Colombian coal destined to the far East because of higher prices in the Asia-Pacific, favourable freight rates and slowing demand in North West Europe.

Based on our models, we also see an increase in demand for coal imports from South East Asian countries such as Philippines, Thailand, Malaysia and Vietnam (which tuned in to a net importer in 2015).

South East Asian coal fired generating capacity is set to increase by 47% by 2020 with roughly 29 GW of coal fired power plants under construction, per Global coal plant tracker.

India’s decreasing demand for imported coal should result in Indonesia, the major thermal coal exporter in the Asia Pacific, focusing on South East Asian markets. Indonesia is also likely to export lower volumes due to an anticipated increase in domestic demand.


CC: Do you think that coal prices are at risk of dropping to early-2016 levels again in 2017?

VT: Chinese imports increased by over 40 Million Tonnes in 2016 with the majority of the increase occurring in H2 2016 as a result of China’s domestic policy which restricted coal mine operating days to 276.

The policy changes in conjunction with winter demand helped in supporting higher coal prices in the latter part of 2016 and early 2017.

The National Development and Reform Commission (NDRC) indicated earlier in March 2017 that China plans to cut 150 Million MT of coal capacity in 2017.

The cuts in combination with the government’s intention to intervene if the prices deviate from a reasonable range will help maintain prices at a higher level compared to early 2016.


CC: Do you think that the election of Donald Trump will change the outlook for coal producers in the US? What role do you see coal US coal exporters playing in the future?

VT: Domestic coal production in the USA dropped by 18% in 2016 compared to the year before and has been at the lowest level since 1978.

The combination of cheaper natural gas, ageing coal plants and stagnating electricity demand has accelerated the reduction in coal generation in the energy mix.

Natural gas fired generation surpassed coal fired generation for the first time in 2016 and accounted for 34% of the total electricity generation.

In 2015, 94 coal fired power plants were shut down with a combined capacity of 13.6 GW and an estimated 5.3 GW were scheduled to be shut down in 2016, per EIA.

Since these market-driven factors are likely to mean that domestic demand remains depressed, the new administration will struggle to have a positive impact on coal producers in the short term.

On the global front, US coking coal producers are able to compete in the international market currently due to the impact of Cyclone Debbie which has driven up short-term prices.

Since the cost of transporting coal from the mines to the port in the US is relatively high, producers need consistently higher international prices to be able to compete in the future. 

CC: How likely are HELE and CCS technologies to change the long-term demand for coal?

VT: This is a question of government policy, both in terms of the strength of government commitment to climate change targets and the robustness of government support for technologies such as CCS.

Without a support framework robust enough to provide clear enough long-term investment signals, CCS will find it hard to compete with other low carbon technologies (which in many cases already have a head start as a result of various support schemes).

The level of support for CCS is likely to be determined by national governments so may vary significantly from country to country, and the role that CCS plays in ensuring future coal demand is highly uncertain.

In terms of HELE technologies, these are more likely to ensure the continued competitiveness of coal in the future.

The IEA estimates that the top Asian countries could reduce up to 2 billion tonnes of carbon emissions by adopting the ultra-supercritical HELE technologies.

As individual nations progress towards meeting nationally determined contributions to reduce carbon emission HELE technologies will play a crucial role in the energy mix.


CC: Do you think Chinese coal demand has peaked? How strong do you think imports will remain into China over the short-to-medium term? If Chinese coal demand has peaked, what trajectory will overall demand take from here, and how will it impact global supply/demand dynamics?

VT: The Chinese government aims to cap total primary energy consumption at 4.4 billion tonnes of coal equivalent in 2017, close to the level of 2016.

In addition to the cap it also aims to reduce the coal consumption from 64% in 2015 to 60% in 2017 of the total energy mix. With China intending to cap coal fired power capacity at 1,100 GW, an estimated 55% of the total energy mix, Chinese coal demand is close to reaching a peak in the next few years.

Despite the anticipated future decline in coal demand, imports are expected to be robust due to the government’s policy of reducing coal production capacity by shutting down inefficient mines.

The potential for government intervention to maintain a reasonable price level for coal (Rmb 470/MT –Rmb 600/MT) should also continue to attract imports.


CC: Much of the industry misread the market in 2016, as Chinese cuts and supply disruptions revealed much more market tightness than had been thought. What do you think the industry might be getting wrong about 2017? What are the commonly accepted assumptions that might catch the industry out?

VT: Chinese coal production dropped by more than 9% in 2016 as a result of the governments’ restriction on mine operating days.

Despite the reversal of this policy, coal producers were not able to ramp up production quickly and the Newcastle FOB price, the benchmark for Asia pacific coal, remained elevated at more than $90/tonne until the end of the Dec-2016.

In spite of Chinese government being open to intervene to maintain prices within a reasonable range (Rmb 470/MT –Rmb 600/MT), the ability to ramp up production quickly during any supply disruptions might still be a challenge and this creates the possibility of periods of tightness. This may be reinforced by increasing demand from South East Asian countries as discussed previously.

Together these factors create upside risk that the market may be underestimating.


 

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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