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Global oversupply to dominate thermal coal in short-term: Deutsche Bank

Monday, 05 March 2012 | 00:00
Global oversupply of thermal coal will continue to dominate the sector in the short term, despite net importers China and India remaining the main demand centers for the fossil fuel, a Deutsche Bank analyst said.
Speaking at the Coaltrans Coal Pricing and Trading conference in Geneva, Michael Hsueh, commodities analyst at Deutsche Bank said that on balance, "we think that global markets will either enter or maintain oversupply through the coming years and that affects our price outlook."
Deutsche Bank forecast average API4 (FOB Richards Bay) South African coal prices at $113/mt this year and $115/mt in 2013 before declining to $105/mt over the next two years.
Hsueh said that short-term bearishness would prevail in the Atlantic market, highlighting "higher than ever" pressure for US coal exports as a warm winter pushed gas prices down.
With regard to major producers in the Asia-Pacific zone, Hsueh said he expected Indonesia to continue a 7% year-on-year coal export growth rate in 2012, underpinned by production growth from miners Bumi and Adaro, noting that Chinese buyers had been largely absent from the seaborne market in January amid healthy thermal coal stocks at Chinese power generators and ports.
"This is the key thing to keep an eye on on the supply front especially as Indonesia is already such a large supplier and yet we're still seeing considerable growth rates," he said.
He also said he expected Australian thermal coal exports to increase by around 43 million mt "over the next few years" amid a general recovery from flood-related interruptions prevalent in 2011.
However, Hsueh said he was slightly concerned about South African coal export growth potential partly because a lot of the country's expansion in railway capacity to ship coal to the Richards Bay terminal has been achieved by upsizing to jumbo freight cars.
"Any further expansion would then need to be achieved through the construction of further rail lines and the funding for that has not been fully determined," he said.
He added that although South African state-controlled generator Eskom planned to double its capacity to 80 GW by 2026, potentially increasing domestic coal requirements, "at this point we're hesitant to assume that [Eskom] will meet that target."
On the demand side, noting that Chinese net imports reached a monthly high of 16 million mt in November 2011, Hsueh said in the medium term they would be controlled by improvements in domestic infrastructure. He added that the amount of Chinese coal being transported on rail lines was "steadily improving."
Projecting Indian thermal coal imports to rise 20% year-on-year and likely to reach 90 million mt, Hsueh said the country would surpass China in thermal net imports by the latter half of the decade.
He said that although the Indian government requires coal shipped distances of over 1000 km to have a maximum 25% ash content, an increase in coal washing facilities from 50 million mt to 120-125 million mt by 2016 would encourage more efficient long-range transportation.
Hsueh said that while Indian coal was currently shipped on rail lines shared with passenger trains, "the construction of exclusive freight lines will not only improve throughput but also the overall ability to meet domestic demand."
Source: Platts
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