Commodity market report
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73 Pages

Global thermal coal long-term outlook H1 2015


Global thermal coal long-term outlook H1 2015

Report summary

Coal consumption is under pressure. In developing economies, coal demand continues to grow but more slowly than in the past. In China, environmental policy, domestic protectionism, weaker economic growth and structural change in the economy caused the arrival of "peak coal" last year in coastal regions. Meanwhile, western economies continue to transition away from coal. Seaborne providers are adapting. Low oil prices, mining productivity improvements  and FOREX changes are helping miners adapt.

What's included?

This report includes 7 file(s)

  • Global thermal coal long-term outlook H1 2015 PDF - 3.20 MB 73 Pages, 7 Tables, 55 Figures
  • Global thermal coal long term outlook H1 2015 key themes April.pdf PDF - 1.08 MB
  • CMS Thermal Coal Demand overview data June.xls XLS - 1.87 MB
  • CMS Thermal Coal Prices data June.xls XLS - 2.16 MB
  • CMS Thermal Coal Supply overview data June.xls XLS - 3.41 MB
  • CMS Thermal Coal Additional data June.xls XLS - 4.76 MB
  • CMS Thermal Coal Country Plant data June.xls XLS - 1.11 MB

Description

Global coal markets are facing extraordinary challenges and uncertainties. Factors such as global overcapacity, weakening demand and falling prices have created cautious investors. These factors have caused delays and cancellations of many mine and infrastructure projects, as well as lower growth rates at others.

This Thermal Coal Market Long Term Outlook report gives global and regional coal producers, consumers, transporters and investors detailed supply, demand and price forecasts for the coal industry, covering all the key domestic markets in North America, China and India.

Use this report to gain a better understanding of market dynamics, including revenue and demand potential for different coals. It will also help you identify trade patterns and changes affecting the thermal coal markets.

Wood Mackenzie is the only coal industry service provider that offers a market outlook integrated with other sector analyses, including macroeconomics, coal supply, steel markets and gas and power markets. Our coal analysts are based in the markets they analyse. They work with objective, proprietary data to help you maximise your current and future investments.

From market dynamics to trade patterns, we give you confidence in your strategic planning.

  • Executive summary
    • Low oil prices have impacted coal costs across the value chain
    • Overcapacity will weigh on prices but higher prices will be needed to incentive significant new investment
      • Prices will support Galilee Basin mine development in the long term
    • Coal prices are being impacted by declining coal demand growth rates
    • Why are prices lower in this update?
    • Pacific demand growth will be impacted by environmental pressure and policy development
      • Why is Pacific thermal coal demand lower in this update?
    • Coal demand will continue its decline in the Atlantic basin
    • Western economies continue to transition away from coal
      • European emission reduction and the road to de-carbonisation
      • US MATS and CPP will penalize coal-fired generation and end new coal plant development
    • Australia: will investment in the Galilee basin move forward?
      • Australia has been a standout competitor but FX gain has been a very important contributing factor
      • Australia is well placed to benefit from forecast demand growth but investment is key to unlocking potential growth
    • As supplier competition for market increases, trade patterns will become more complex
      • PRB coal must find alternatives to US Pacific Northwest port options
    • Indonesia will remain the dominant low cost (FOB) supplier, but Russia gains ground
    • Risks and uncertainties – China, China, and India
  • Economic outlook
  • Prices
    • Short-term outlook 2015-16: costs and prices converge following a recent period of cost deflation and FOREX change
      • Low oil prices have impacted coal costs across the value chain
      • Producer margins have been protected by FOREX changes and this situation is supporting low prices
      • Delays in rationalization have prolonged overcapacity but slowly rising costs will require price increases as FOREX changes stabilize
    • Medium-term outlook 2017-22: Asian demand slowly absorbs overcapacity
    • Long-term outlook 2023-35: a return to incentive pricing
      • Higher prices will be needed to incentive significant new investment
      • Prices will support Galilee Basin mine development in the long term
      • Coal prices are impacted by declining coal demand growth rates
    • Lower demand will send some prices low enough to shut out new supply
    • Japanese Power Utilities (JPU) contract importance will decline in the long term
    • Changes from the prior outlook
  • Demand
    • Asia demand summary
      • In the developing world, thermal coal demand is being altered by a growing desire to intelligently consume coal
      • The economic growth and power demand relationship is weakening in some markets
      • Growing environmental concerns are forcing governments to tax coal use
      • Coastal coal demand: slowing in China but growing in India
      • Role of nuclear power in Asia
      • Gas on coal competition is becoming a global phenomenon
      • Balancing the needs of economic growth, environmental protection and market reforms
      • Australia and Indonesia will play a complementary role and dominate Asia Pacific
      • High and low rank coals: coal blends are here to stay
      • Changes from our prior Asia update
    • EMEARC - Americas demand summary
      • Volumes serving EMEARC: Atlantic suppliers stay home for longer as AP demand weaker
    • Western economies continue to transition away from coal
      • In Europe: climate energy policies are the directive; IED, EU-ETS, capacity payments, renewables, CO2 reduction plans are the vehicle
      • European emission reduction and the road to de-carbonisation
      • Outside the EU, other drivers such as the removal of subsidies will be positive for coal demand
      • US MATS and CPP will penalize coal-fired generation and end new coal plant development
      • In South America, small pockets of limited growth in demand exist
  • Supply
    • Low oil prices and FOREX changes have had significant impacts
      • Low oil prices are impacting coal costs globally
      • FOREX impacts have lowered mine costs in US dollar terms
    • Australia: will investment in the Galilee basin move forward?
      • Australia has been a standout competitor but FX gain has been a very important contributing factor
      • Labour is the new battleground
      • Australia well placed to benefit from forecast demand growth
      • Investment is key to unlocking potential growth in Australia
    • In Indonesia, cost reductions are ensuring near-term survival; long term export upside is impacted by the slowdown in Chinese import demand and growth in the domestic market
    • PRB exports will follow more costly delivery routes
      • Growing Indonesian internal demand and government control will eventually limit exports leading to increased demand for PRB coal
      • PRB coal will find alternatives to US Pacific Northwest port options
    • FOREX changes benefit Russian suppliers but indicate underlying economic weakness that will impact investment
      • Russian coal mine competitiveness has improved
      • Access to investment capital is a problem
    • Colombia continues to have problems meeting growth expectations but expansion will eventually be achieved
    • Absent short-term FOREX volatility, it will be many years before cross-regional trade patterns change
      • The usual suppliers to Asian markets have sufficient coal to meet demand through the mid-term
    • Indonesia will remain the dominant low cost (FOB) supplier, but Russia gains ground
  • Infrastructure
    • Ocean freight outlook
      • There will be no shortage of infrastructure capacity in Australia
    • US port development is mainly limited to the Gulf Coast
      • West Coast port development will be delayed, possibly permanently
      • Surprise! San Francisco port capacity expansion is occurring
      • Gulf Coast port capacity projects are planned and underway
      • Mexico may provide new outlets for western US coal shipments to Asia
    • Renewed Russian competitiveness hinges on infrastructure
      • Large port and rail expansion required to accommodate exports to the east
    • Infrastructure development in frontier regions has progressed
      • The Nacala, Mozambique port has been completed
    • Canadian export infrastructure is sufficient through the mid term
  • Trade
    • FOREX re-orders trade flow by changing costs and prices
      • FOB and delivered supply curves have been altered and some of the recent change will be permanent
    • Outlets for stranded coal will be fewer
      • Little near-term opportunity seen for high cost providers to Europe
      • Long-term trade shifts may still present options for "stranded" western hemisphere suppliers
    • Thermal coal demand growth may be slowing in Asia, but trade flow will increasingly be directed there
      • Outside Asia, shrinking demand will encourage new trade flow, but timing is a problem
      • Seaborne markets will remain dependent on Asia for growth, but smaller growth will limit opportunities for new entrants
  • Supply-demand balances
    • Headwinds are slowing coal demand growth
      • Seaborne markets will grow more slowly than previously forecast in the longer term
      • Generation markets dominate global demand for thermal coal
      • India will soon become the dominant seaborne thermal coal importer
      • China and India will dominate thermal coal markets
  • Risks and uncertainties
    • Coal vs environment: majority of risks point to downside for coal demand
      • Asian carbon programmes and CO2 reduction plans may evolve faster than in our base case
      • Renewables penetration in Asian markets
      • Coal quality as a problem and reshaping the future in an ultra-low emissions world
      • The trade-off between fears of nuclear plant development and increased coal consumption is hard to assess
    • National responses to rising import costs, stranded national investment and increased unemployment in the domestic mining industry is not known
      • China may take drastic steps to insulate its domestic industry from imported coal
      • India may support its politically powerful domestic industry directly with subsidies and indirectly through increased infrastructure spending and new coal washery development
      • Investment hurdles mount: funding new coal mines, plants and infrastructure could become more difficult as the "moral" case against coal gains steam
      • Traditional relationships between economic growth and power generation may be changing: the rate at which emerging economies decouple economic growth from electricity generation may be different than we forecast
      • Fluctuating exchange rates can alter competitiveness but are very difficult to forecast: a weakening US dollar versus producer currencies could accelerate supplier rationalization and alter trade flow patterns
      • Continual cost deflation: advances in equipment utilisation, extended diesel downside, further productivity gains, technological improvement

In this report there are 62 tables or charts, including:

  • Executive summary
    • Global thermal production and demand data by country (Mt)
    • Thermal coal spot price versus 90th percentile cost (US$/t, nominal)
    • Seaborne demand versus supply capacity by mine status (Mt)
    • Breakeven costs for select Australian thermal projects at 15% IRR (6,000 kcal/kg NAR basis)
    • Thermal coal price forecast, FOB port (US$/t, real 2015)
    • Thermal coal price forecast, delivered (US$/t, real 2015)
    • FOB Newcastle 6,000 kcal/kg NAR market price comparison, H2 2014 vs .H1 2015
    • Marginal cost change in key bituminous Australian coal thermal supply (6,000 kcal/kg NAR)
    • Seaborne thermal coal demand forecast in Asia (Mt)
    • China total thermal demand change (Mt)
    • China seaborne thermal demand change (Mt)
    • MENA seaborne thermal demand change (Mt)
    • EU seaborne thermal demand change (Mt)
    • Seaborne thermal coal export cash cost supply curve (2015, energy adjusted, US$/t)
    • Seaborne thermal coal export cash cost supply curve (2035, energy adjusted, US$/t)
    • Risk Assessment: H1 2015
  • Economic outlook
    • Exchange rate assumptions, selected currencies (local per US$)
    • GDP assumptions, selected countries (% growth, year-on-year)
    • Industrial production assumptions, selected countries (% growth, year-on-year)
  • Prices
    • Thermal coal spot price versus 90th percentile cost (US$/t, nominal)
    • Seaborne demand versus supply capacity by mine status (Mt)
    • Seaborne demand “looseness” versus FOB Newcastle price
    • Breakeven costs for select Australian thermal projects at 15% IRR (6,000 kcal/kg NAR basis)
    • Thermal coal price forecast, FOB port (US$/t, real 2015)
    • Thermal coal price forecast, delivered (US$/t, real 2015)
    • JPU-type coal market statistics (Mt and %)
    • Marginal cost change in key bituminous Australian coal thermal supply (6,000 kcal/kg NAR)
    • FOB Newcastle 6,000 kcal/kg NAR market price comparison, H2 2014 vs. H1 2015
  • Demand
    • Seaborne thermal coal demand forecast in Asia (Mt)
    • Growth in coal and non-coal-fired generation capacity in Asia (GW)
    • Share of coal in the electricity generation in the Pacific basin (%)
    • China GDP vs coal-fired generation growth
    • India GDP vs coal-fired generation growth
    • Consumption tax on coal into power (US$/t)
    • Growth in nuclear power generation in Asia (TWh)
    • Key seaborne thermal suppliers in Asia (Mt)
    • Seaborne thermal demand by rank in the Pacific basin (Mt)
    • China total thermal demand change (Mt)
    • China seaborne thermal demand change (Mt)
    • Coal plant net additions/retirements for EMEARC: 2008-2035 (GW)
    • MENA seaborne thermal demand change (Mt)
    • EU seaborne thermal demand change (Mt)
    • EMEARC seaborne thermal coal demand by exporter (Mt)
    • European carbon allowance prices – H1 2015 vs H2 2014 outlook
    • Coal-gas parity costs in power – coal price cases (US$/t)
  • Supply
    • Change in the supply curve into ARA since the end of 2014
    • Coal trade among export and import regions (Mt)
    • Coal trade between export and import regions by coal rank (Mt)
    • Seaborne thermal coal export cash cost supply curve (2015, energy adjusted, US$/t)
    • Seaborne thermal coal export cash cost supply curve (2035, energy adjusted, US$/t)
  • Infrastructure
    • Baltic Dry Bulk Index history
    • Net increase in vessel fleet (Mdwt)
    • Bunker price in Northern Europe vs Brent oil price
    • Bunker price in Singapore vs Dubai oil price
    • Time Charter rates vs bunker prices in the Pacific region
    • Baltic Capesize Index
    • Dry bulk trade net Increase (Mt) and 4TC Average Baltic Cape size Index
    • Dry bulk carriers’ fleet distribution by year of build (MDWT)
  • Trade
  • Supply-demand balances
    • Global thermal supply-demand balance
    • Global thermal production and demand data by country (Mt)
  • Risks and uncertainties
    • Risk assessment H1 2015
    • Risk assessment H2 2014
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