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  • Insight

    Global coal M&A activity: Australia drives rebound

    • 12 July 2017

    Yancoal leads in bidding for Coal & Allied assets

    $1,100.00

    Summary

    What's included

    • Document

      global coal m&a activity June 2017.xls

      XLS 2.41 MB

    • Document

      Global coal M&A activity: Australia drives rebound

      PDF 347.71 KB

    • Document

      Global coal M&A activity: Australia drives rebound

      ZIP 757.41 KB

  • Commodity market report

    Global thermal coal long-term outlook H1 2017: Capacity-oriented policy steps drive seaborne markets

    • 08 August 2017

    As coal demand from China declines, India's demand grows to overtake China as the largest thermal coal importing country in the world.

    $6,750.00

    Summary

    The thermal coal trade has undergone a sea change over the past year due to reforms in China's coal sector and frequent supply outages in key exporting countries. Import demand variability has increased and the market has often looked tighter than it actually is on annual basis. Newcastle thermal benchmark has averaged US$82/t since July 2016. As a result the entire seaborne thermal curve is making a positive margin after several years of losses and margin compression. While reforms in China are not over yet there are limited signs of improved profitability resulting in net new capacity additions. In the seaborne market as well miners continue to conserve cash rather than bring on new supply as demand outlook remains uncertain. In fact export supply in some regions notably Australia is consolidating as traditional investors such as Rio Tinto and Mitsubishi prepare to exit the thermal coal business. As emphasis on alternatives to coal use grows across the globe we project a long lull in the thermal coal market. Despite increasing energy needs from developing economies pathways to lower thermal coal use are growing with better technologies carbon reduction policies and low cost financing for renewable energies. New coal plants are more efficient and require less coal per MWh. Renewable generation is becoming less costly. There have also been advancements in storage systems energy efficient products and the smart grid. We have not greatly revised our forecast for seaborne thermal coal demand in this update from our H2 2016 outlook. Near term demand is slightly higher due to stronger Chinese imports. However we expect a slight drop in total imports longer term due to less growth in low rank coals. Overall seaborne thermal coal demand will average 935 Mt until 2022 and then increase to 1 Bt by 2027. By 2035 it will reach 1.065 Bt down 12 Mt from the last update. Southeast Asia and India will bring on new import demand from additional coal fired capacity to serve rising power needs. Southeast Asia's imports will grow from 88 Mt currently to 227 Mt by 2035 while India's will grow from 148 Mt to 240 Mt in the same period. China on the other hand remains a contestable market. Imports will increasingly become a function of domestic supply displacement in coastal provinces. We believe that recovery in Chinese domestic coal supply and improvement in cost competitiveness are more crucial than ever before to limit imports. Chinese coastal demand will fall from 1.1 Bt now to 945 Mt in 2020 and 662 Mt by 2035. Our base case for imports will also decline from 170 Mt this year to 125 Mt in 2020 and stabilise at 100 Mtpa thereafter. That means domestic coal supply will need to reform and improve its cost position significantly to maintain market share. Demand in EMEARC and the Americas will continue to fall and reach 139 Mt and 38 Mt respectively by 2035 from a total of 215 Mt at present. The reduction is structural due to declining power demand and the rise of renewables and gas fired electricity. However despite these risks and disruption to coal based power generation demand for low ash low sulphur and high energy thermal coal will remain strong and drive price formation. We forecast Newcastle and ARA benchmark prices to be US$65 80/t over the next 12 months. Although building new coal projects will be more difficult and expensive there will be a supply gap after 2022 which if not closed will result in price growth. We expect new basins in Australia Galilee and Surat will eventually be developed to fill this gap and prices will rise to incentive levels of US$75 80/t (real terms) after 2025. For data associated with this long term outlook please refer to the Global Coal Market tool.The PDF download with this report contains further information about our forecast.

    What's included

    • Document

      WM CMS Thermal H1 2017 Slidepack July 2017.pdf

      PDF 3.13 MB

    • Document

      cms thermal coal prices data june.xls

      XLS 3.39 MB

    • Document

      Global thermal coal long-term outlook H1 2017: Capacity-oriented policy steps drive seaborne markets

      ZIP 4.45 MB

    • Document

      Global thermal coal long-term outlook H1 2017: Capacity-oriented policy steps drive seaborne markets

      PDF 539.94 KB

    • Document

      Executive summary

      PDF 81.89 KB

    • Document

      Prices

      PDF 126.76 KB

    • Document

      Demand

      PDF 130.12 KB

    • Document

      Supply

      PDF 211.19 KB

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      Infrastructure

      PDF 133.46 KB

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      Risks and uncertainties

      PDF 88.78 KB

  • Commodity market report

    China coal long-term outlook H1 2017

    • 26 July 2017

    China will drive global coal prices near term, but growing demand elsewhere in Asia will drive the country's domestic coal prices long term.

    $3,400.00

    Summary

    Government policies have been used to control China's coal market for the second consecutive year. To ensure coal and related industries operate stably the government has announced more policies affecting both supply and demand. We believe this intervention will continue in the near term. Coal prices are at their highest level since Q4 2016. We expect prices will decline as supply is increasing but we also expect demand to decline. Nevertheless prices will remain in the range the government deems reasonable as long as supply and demand are balanced. Demand for both thermal and metallurgical coal will decline in the long term. On the thermal coal side energy demand per capita is reducing as China's economy shifts from manufacturing to services. Meanwhile coal's share in energy demand is reducing as demand increases for renewable energy sources. On the metallurgical coal side the use of more scrap in the steel industry is taking its toll on hot metal and subsequent coal demand China's efforts to cut coal capacity will have an impact in the near term. The new capacity coming online is more efficient and this is significantly reducing average domestic mining costs. We forecast a decline in thermal coal imports for three reasons. Firstly China is already restricting such imports. Secondly thermal coal demand in the key coastal region is declining. Finally seaborne products will be less competitive as average domestic mining costs fall. Metallurgical coal imports will see a gradual increase over the long term as domestic supply falls short of demand. Near term Cutting capacity will remain a key theme in China's coal market. The government is aiming to cap production capacity at below 4 Bt by 2020 from 5.7 Bt in 2015. In 2017 China implemented a long term contract mechanism between coal producers and their customers. This new mechanism makes sense in stabilising domestic supply and demand. More than 70% of thermal coal deals have been signed under long term contract. Strict capacity cutting measures have led to tight supply during periods when coal demand is high such as in winter when it is used for heating or summer when it is used for power generation in response to increased air conditioner use. This has caused coal prices to rise higher than the RMB570/t recommended by the government. As such the government needs to strike a balance between meeting capacity cutting targets and preventing coal prices from climbing too high. Although both thermal and metallurgical coal demand will fall in the near term supply will remain stable. As a result prices for both will decline in the same period. Long term China will drive global coal prices in the near term. However once the country has rationalised its supply growing demand elsewhere in Asia will drive China's domestic coal prices in the long term. We estimate thermal coal prices will reach a low of RMB494/t in 2024 before increasing gradually to RMB569/t in 2035. Metallurgical coal will bottom out earlier. We expect the price of China's domestic benchmark Liulin #4 CFR Tangshan to fall to RMB147/t in 2020. However prices will rebound to RMB174/t in 2035. Both domestic demand and supply are expected to decline gradually with imports remaining steady thanks to their quality and competitiveness. Although the demand for energy is increasing coal's role in meeting this demand will decline in the long term. We expect total coal demand to decline from 3 840 Mt in 2017 to 3 482 Mt in 2035. Electricity demand will increase by about 50% between 2017 and 2035. But coal generation will slide as renewable energy contributes a greater share. Heating coal demand will experience the biggest fall as environmental pressures increase but this will be offset by growing demand from the coal to chemicals sector. We forecast thermal coal demand to fall to 2 860 Mt in 2035 from 3 093Mt in 2017. Consumption of metallurgical coal will drop to 622 Mt in 2035 from 747 Mt in 2017 as crude steel output plateaus and scrap is increasingly used as feedstock. The decline in both thermal and met coal demand will result in the retirement of high cost domestic coal supply. We expect domestic thermal coal supply to fall to 2 760 Mt in 2035 from 2 903 Mt in 2017. Domestic supply of metallurgical coal will decline by 133 Mt to 555 Mt between 2017 and 2035. Stricter import regulations as well as declining demand in the coastal region will reduce seaborne thermal coal imports in the near term. But as imported coals are higher quality (low ash low sulphur and high energy) than domestic coals and cost competitive we expect seaborne thermal coal imports to remain around 100 Mt in the longer term. We expect metallurgical coal imports to increase to 69 Mt in 2035 from 61 Mt in 2017 as China lacks premium hard coking coal and Mongolia will boost its output. Please go to the downloads section for the slides and excel spreadsheets. For more about the market dynamics please refer to our monthly short term outlooks and recently published insight reports: Sanmei: how will tackling China's 'dirty coal' problem affect demand? China restricts coal imports to protect domestic producers China limits coal ash content to 10% in urban areas Mongolian coal exports to China surge but can they keep growing? China coal output to remain at 330 days China coal capacity control and replacement plan: a long shot to balance the market Interpretation of China s coal capacity policies and targets China introduces scheme to protect thermal coal prices What you need to know about China's energy 13th Five Year Plan

    What's included

    • Document

      China coal long-term outlook H1 2017.pdf

      PDF 1.62 MB

    • Document

      01 CMS China Coal Executive Summary data.xls

      XLS 4.12 MB

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      02 CMS China Coal Prices data.xls

      XLS 1.82 MB

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      03 cms china coal demand data.xls

      XLS 1.75 MB

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      04 CMS China Coal Supply data.xls

      XLS 372.50 KB

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      05 CMS China Coal Infrastructure data.xls

      XLS 1.20 MB

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      China coal long-term outlook H1 2017

      ZIP 5.30 MB

  • Commodity market report

    Global metallurgical coal long-term outlook H1 2017: Supply growth pressuring prices

    • 26 June 2017

    With Australian mines returning after the recent cyclone and other global producers expanding, prices should fall in the near term.

    $6,750.00

    Summary

    The metallurgical coal market has been hit with change over the past 12 months. Various supply restraints pushed Australian low volatile spot prices to over US$300/t two times during this period. Prices subsided after the last event driven by Cyclone Debbie in March and the Queensland supply chain appears to have returned close to monthly export levels achieved earlier in the year. In addition to these major events Nippon Steel & Sumitomo Metal Corporation decided to start using a formula based on index prices for hard coking coal after decades of holding bilateral negotiations with coal producers to arrive at a price. The impact of this change in structure remains to be seen; but it certainly adds a layer of uncertainty to the system. It is likely that we could see more volatility to HCC pricing and new differentials for semi soft and PCI. Our demand forecast has changed very little since our last update but our view of export metallurgical coal cash costs has increased by US$7/t (FOB port) We believe that with new supply entering the trade prices will continue to fall but only to about US$125/t (real terms) for 2018 and averaging about US$115/t (real terms) between 2019 and 2022 a period with flat demand requirements. Strong demand growth from India is the primary driver post 2022 and results in prices reaching US$128/t by 2035. China remains pivotal to our view of the near term prospects of the metallurgical coal markets. Despite a flat to moderately declining demand for imported coal we expect China's domestic reforms of the coal and steel industries will have a net benefit on met coal pricing in the mid term. Of critical importance is the willingness of Chinese authorities to deleverage the mining sector which will keep domestic prices artificially high. The effective implementation of supply cuts last year has proven the government's unprecedented ability to carry through with reform. The recent developments in Japanese contract pricing methodology for hard coking coal add a layer of complexity to our outlook this time around. The shift in Japanese quarterly contract pricing to a trailing index based mechanism could actually increase the influence of Chinese supply demand balance on the seaborne trade and transfer the benefit as well as the risks of higher domestic Chinese prices to international suppliers. We have included that assumption in our forecast for hard coking coal prices. Risks around supply availability have grown in recent times. The effects of low investment in existing mines in places like Russia and Indonesia are hampering efforts to expand exports. After eight to nine months of extremely high prices the investment is flowing again but will take time to bear fruit. As a result we expect coking coal exports from Russia to stay subdued until 2019. This combination of Chinese reform risks around global supply growth rates and impending changes to price formation have led us to increase mid term prices by approximately US$16/t between 2019 and 2024. The decision to increase our forecast prices has been taken despite a broadly unchanged view of demand. Imports into China should be slightly higher over the next few years than we previously thought. But we still expect the trade in hard coking coal to remain relatively flat at between 175 Mt and 180 Mt for the next seven to eight years. Our view on absolute import demand for metallurgical coals has changed very little since our last update. Although we have lowered our outlook for global crude steel production from the last outlook our expectation for hot metal is higher by some 10 Mtpa. As a result our view of global seaborne import demand has increased by about 6 Mt per year reaching 353 Mt in 2035. We have modestly increased import demand into China by 3 Mtpa. China s seaborne imports will peak at around 50 Mt in 2017 and range between 39 Mt and 43 Mt for the remainder of the forecast. India remains the key driver for long term seaborne coal demand growth and dictates the point at which new projects will be required to satisfy demand. Total seaborne demand increases by 61 Mt over the forecast period and during that time India s rise is 56 Mt. The combined changes at all other countries are relatively insignificant. The additional demand for seaborne coal requires new project tonnes and pushes our long term price forecast to US$128/t (real).

    What's included

    • Document

      Global metallurgical coal long-term outlook H1 2017.pdf

      PDF 1.64 MB

    • Document

      Global metallurgical coal long-term outlook H1 2017: Supply growth pressuring prices

      PDF 359.40 KB

    • Document

      Global metallurgical coal long-term outlook H1 2017: Supply growth pressuring prices

      ZIP 13.43 MB

    • Document

      CMS data metallurgical trade long term outlook 2017 H1.xlsx

      XLSX 17.78 MB

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      CMS data-pivot view-metallurgical trade long term outlook 2017 H1.xlsx

      XLSX 2.96 MB

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      CMS price charts metallurgical trade long-term 2017 H1 data.xls

      XLS 2.11 MB

    • Document

      CMS supply demand charts metallurgical trade long-term 2017 H1.xlsx

      XLSX 1.44 MB

    • Document

      Executive summary

      PDF 80.95 KB

    • Document

      Prices

      PDF 133.98 KB

    • Document

      Supply

      PDF 104.01 KB

    • Document

      Demand

      PDF 100.08 KB

    • Document

      Risks and uncertainties

      PDF 90.61 KB