Global Trends in coal to 2020
Over the next five years, the global coal industry is expected to witness a fundamental structural change to the seaborne market: a move away from Chinese led demand growth. The last 10 yr have seen significant growth in the global seaborne market. But with global production seeming to have peaked in 2014, serious issues remain as to its sustainability.
The majority of global coal reserves are located in the US, followed by Russia, China, Australia, India and Germany, which collectively account for 76.9% of the global total. The major producers are China, the US, India, Australia, Indonesia and Russia, collectively accounting for 81.1% of global production in 2014. Logically, this means that a country, such as Indonesia, is rather rapidly depleting its reserves. Over the forecast period, these rankings will remain the same, with little movement in position, as had happened with the rapid rise of Indonesia over the previous decade when production increased from 154 million t in 2005 to 458 million t in 2014. Other developed countries, such as Australia and the US, may never find an economic need to exploit their reserves.
For the two largest consumers of coal, China and the US, serious efforts are now being made to curtail coal use, which contributed to global consumption decreasing in 2014. Consumption in 2014 fell by 62 million t compared to 2013, and it will likely decrease again in 2015. This would be the first fall in consecutive years in recent history. Efforts to curtail consumption include increased environmental protection regulations and the US government’s plans to decrease overall coal consumption by 180.4 million t and by 2.2% in electricity generation in 2015 over 2014. The Chinese government has also initiated an ambitious campaign to diversify its energy sources, consolidate its coal mines and cap consumption, announcing various coal quality restrictions and a ban on new developments of coal-fired plants.
Delving deeper into Chinese coal production, over the last decade global production has continuously increased, mainly due to increased production in China. Yet, Chinese coal production decreased to an estimated 3.59 billion t in 2014: the first fall registered since 2000. Most Chinese coal mines are located in Inner Mongolia, Shanxi, Shaanxi and Xinjiang. In 2014, coal output in Inner Mongolia fell by 12% to 123 million t, while production in Shanxi was relatively flat increasing by just 1.5% over 2013. Since the state-owned enterprises account for approximately 62% of total domestic coal production, both provincial and central governments have initiated measures to support domestic industry, including a reduction in provincial-level mining fees and royalties, the imposition of an import tax of 3% and 6% on metallurgical and thermal coal respectively and a reduction in export tax from 10% to 3%.
Without robust demand growth from China and the developed economies, there is likely to be little support for prices. Hence, the world is unlikely to see a return of US$100/t prices for thermal coal over the forecast period; prices are instead expected to stay around US$60/t FOB (Newcastle 6700 GAD) to 2020. The net effect of prices at these levels will be that export-oriented countries, such as Australia, Indonesia and Colombia, will have to focus on reducing operating costs to stay competitive in the seaborne market. These countries will increasingly close their higher-cost smaller coal mines, with large expanding opencast mines taking their place.
Over the forecast period, global coal mine production is projected to grow moderately at a CAGR of 1.6% to 8.6 billion t in 2020. This very moderate growth will be mainly driven by developing Asian countries, predominately India. In India, the government plans to quickly increase coal production and allow private investment in the industry. The government’s decision to reallocate all 204 coal blocks, which were earlier declared illegal by the Supreme Court of India in December 2014, is projected to increase coal production to over 1 billion t in 2020. Coal is a major source of energy in the country; it has the largest share as a raw material for energy production and an increase in population is expected to drive growth in demand for energy.
Other potential growth countries are Russia and the former Soviet Union countries. Recently, the Russian government announced plans to increase the use of coal as one of its primary energy sources from 25% in 2014 to 27% in 2020. In contrast, very few new large-scale projects in the US, Australia and Indonesia, announced in the boom era, are likely to be developed over the next five years.
By 2020, the global coal market will likely have shifted from its reliance on China, with export-based countries having stagnating production and a shift away from the seaborne market for many coal consumers, such as China. The one exception to this will be India, which will continue to increase in coal consumption driving both domestic production and import demand growth.
This article is based on the report ‘Global Coal Mining to 2020’ (Timetric; August 2015).
Clifford Smee is Lead Analyst – Mining at Timetric.