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Interview: Georgi Slavov, Head of Research, Marex Spectron Ltd.

Georgi Slavov talks to Coaltrans about plans for developing coal-fired power generation in South and South East Asia, optimism in the coal industry, the risk of returning to oversupply, and the future for coal in Europe

You can hear more from Georgi at The World Coal Leaders Network in Barcelona on 25 - 27 October 2017.

Coaltrans Conferences (CC):
Hi Georgi, thanks for agreeing to take part. Please introduce yourself and your role at Marex Spectron.

Georgi Slavov (GS): My name is Georgi and I am the Head of Research at Marex Spectron Ltd.. My team and I are responsible for the research & analysis of key energy, basic materials & industrial transportation markets. More specifically, we build systematic fundamental trading models for the European power sector, ferrous metals sector, crude oil and oil shipping markets. I am a former Navy Officer and hold Engineering and Economics degrees. Prior to joining Marex Spectron I held senior research positions with a hedge fund called Armajaro and ICAP Plc. My work benefits enormously from the close links with the academic community. I am a member of the Business Advisory Committee at the ICMA Graduate Centre, Henley Business School, a guest-lecturer in International Trade & Finance at the same business school and a published author by Incisive Media/Risk Books in the field of commodity derivatives. Last but not least, I am the director of Marex Spectron Institute which I founded in March 2016.

CC: The coal industry at the moment seems to be cautiously optimistic, particularly in the United States. Do you think this optimism is well placed?
GS: As long as the industry is able to actively manage the supply side of the market, the optimism as far as coal price performance is well placed indeed. I have no reasons to believe that this will not be the case. Thermal coal has dominant market share in key developed and developing economies which underpins steady demand for it in the short to medium-term. Even if demand weakens beyond the seasonal deviation, active supply-side management is able to support the prices at levels where the economics of production make sense. 

What do you see as the major downside risks for investors looking at coal in 2017?

GS: It all depends on the investment horizon. According to some, traders are also type of investors but their agenda is very different from others who invest in assets, both extraction and logistics. There are many short-term downside risks for the first group. I can mention the increased supply out of Russia and declining demand in Europe on the back of growing renewables output later in the summer. When it comes to risks to asset investment, constantly rising share of renewable energy and LNG are the most obvious threats to many established seaborne coal trade flows. 

Many see plans for developing coal-fired power generation in South and South East Asia as the bright spot in global coal markets. To what extent do you think these markets will pick up the slack from declining markets elsewhere? How much of a threat to coal is cheap solar and wind energy in these markets?

GS: Electricity from thermal coal power stations remains the cheapest source of energy in many parts of the world. Places like this have no immediate alternative in the face of large scale solar or wind parks even if the cost of these technologies continues to decline. The danger comes from the erosion of demand on the back of small scale installations. Therefore, we are talking about limiting the upside for coal, rather than outright negative growth in demand.     

The media is keen to portray coal as in a state of permanent decline in Europe, despite heavy reliance still existing in countries such as Germany, Poland and Greece. Do you think that coal has any kind of future in Europe?

The hard data shows us that coal consumption in Europe is in a permanent decline. The speed of this decline varies from year to year due to domestic and geopolitical considerations but the long-term trend is in place. This was detrimental for the seaborne trade because the countries with heavy reliance on coal in their energy mix also happen to be large producers. It will take decades before such countries change in a meaningful way their energy mix due to social, infrastructure and energy security implications. However, the seaborne trade flows into Europe will continue to decline.      

On the supply side, miners have been increasing output in response to higher prices. Is the market at risk of returning to oversupply?

GS: The market is always at risk of oversupply if the capacity utilization of the mines globally is low. As of today, the mining capacity utilization is about 72% which implies significant spare capacity waiting for the right moment to appear on the market again. This is why I suggested earlier that supply-side management is key for securing coal prices which are feasible from the perspective of economics of extraction.  

Finally, the biggest driver of coal prices last year was China and the 276-day mining policy. Are we likely to see any further surprises coming from China over the next four quarters?

GS: The biggest driver of the coal prices last year was the active supply-side management of the coal market. This includes both the Chinese domestic “276 working days” policy and the seaborne market volume. It was not only about Chinese supply or demand. Supply of seaborne coal actually declined as the demand from China increased. The result is that the seaborne coal price increased by 100% while the Chinese domestic went up by about 50%.

The impact of China on the global coal market is never easy to predict. Their demand for seaborne is a function of the import arb and not so much the structural demand which you can forecast on the basis of economic performance. As it stands at the moment, demand from China is likely to stay not only because the thermal electricity production is up, but also because the import arb is widely open in favour of continuously strong imports. The result is global coal market pricing at/above $80 pmt which is more than what most people in the industry could not have even imagined two years ago.  

Published August 2017


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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