The big news from the last two weeks is the increased likelihood that China will ban imports of low-calorie coal. There is one potential bright spot with increasing natural gas prices in USA. Well, a bright spot if you are a coal company, or a railroad that hauls coal and didn't rush to gas-powered locomotives (which is probably all railroads).
CHINA POLICY CHANGE
Winners: China's domestic coal industry; picnicking humans and other mammals. Also, those who can buy coal in the import market and quietly sell it on domestic market will get rich, and can send their kids to one of the two Beijing prep schools with a pollution dome. Losers: China's domestic electricity producers and consumers, sellers of air filtration systems and pollution domes, Indonesian and Australian miners, and mining stock promoters in the U.S.A.
Market reports that China's National Energy Administration is considering a proposal to outlaw the import of some grades of lower calorific thermal coal has been greeted with a mixture of consternation and disbelief by participants in the Asian seaborne market Thursday. (Loyal readers of the Biweekly AKRR Pacific coal market report of course experience no consternation or disbelief as they had read thoroughly and with care all of my prior emails)
China's proposed ban on imports of low calorific value thermal coal will have a serious impact on Indonesian sub-bituminous coal prices, industry sources said Thursday. . . A Singapore-based coal trader said he believes that if the ban is immediately imposed Indonesian sub-bituminous coal prices will drop by at least $5/mt "considering the volume of low rank coal exported to China at the moment."
China may impose higher quality standards for imported and locally traded coal to cut air pollution, two sources said, in a move that could slash imports while boosting the fortunes of a faltering domestic industry.
USA
IEA says U.S. gas prices of $5 could spur return to coal Reuters May 27
"Our analysis shows if U.S. gas prices come to around $5 mmBtu - it is about $4.30 per mmBtu now - we may well see coal come back," Fatih Birol, chief economist of the International Energy Agency, told reporters at an industry conference.
One of the things I learned during my failed indoctrination at the University of Chicago (my socialist comrades at the LSE got to me first) was that if something is cheap folks buy more of it and the price will go up. Also, production will not increase if the marginal cost of production is below the current price. Sounds like the current gas market. Any readers been following the multiple downward revisions in estimates of recoverable natural gas reserves in shale gas territory (and by revisions I mean cutting in half, twice-over)?
U.S. Coal Exports: National and State Economic Contributions National Mining Association - May 2013
prop·a·gan·da; Noun
1) Information, esp. of a biased or misleading nature, used to promote or publicize a particular political cause or point of view.
2) The dissemination of such information as a political strategy.
JAPAN
A spike in Japan's thermal coal imports in April was more a short-term push to accommodate new coal-fired power generation capacity coming online rather than any sign of a sustained long-term trend, according to a report by Macquarie Commodities Research.
Japan Increases Coal Use at Expense of Oil WSJ May 21
Tepco Started Two Coal-Fired Units in April, Boosting Demand for Relatively Cheaper Coal While Limiting Oil Use
Japan's thermal coal imports rose while oil imports fell in April, reflecting increased coal-fired output at electricity utilities. The trend of coal replacing relatively more expensive oil will likely continue until the summer, as higher temperatures could force generators to use all available capacity.
Chubu Electric, Tepco to build coal-fired plant Japan Times May 22
AUSTRALIA
Australian coal miners are steeling themselves for years of production cuts, job reductions and asset sales as swelling shipments from international rivals lower hopes of a recovery in prices for coal . . . To boost their thinning margins, miners in Australia such as BHP Billiton, Rio Tinto, Glencore Xstrata and Peabody have trimmed output and laid off thousands. Clinging to barely profitable operations, coal producers now face the prospect of further cost-cutting, which they fear could benefit rivals when the market recovers.
Analysts said the regulations, which would ban coal with a net calorific value of 4540 kilocalories per kilogram or less, would favour Australian coal at the expense of our main coal competitor, Indonesia, although there was the chance Chinese domestic production would fill the void.
has ruled out further expansion of its coal mining business for now, instead flagging the possibility of more asset sales as it focuses on cutting costs to defend against a weakened outlook for the commodity.
MORE CHINA
China Coal Ban May Boost Qinhuangdao Price, Fenwei Energy Says By Bloomberg News
China’s proposed ban on lower-quality coal imports is likely to boost domestic benchmark prices by as much as 8 percent as supplies drop, according to Fenwei Energy Consulting Corp.
Spot cargoes at the port of Qinhuangdao, a benchmark for the nation’s power station coal, may increase by as much as 50 yuan ($8) per metric ton, Luther Lu, a chief market analyst at the consultancy in Taiyuan, said by phone yesterday. Domestic power plants may buy more coal from Newcastle in Australia or South Africa if prices rise, he said.
China is considering a ban on imports of some lower-quality thermal coal grades, the Economic Information Daily reported May 16, citing an announcement at a conference held by the National Development and Reform Commission and the NEA this month. Nobody answered three calls and a fax to the NEA’s press office in Beijing today.
“Such draft regulation, if carried out, will ban China from getting at least 60 million to 70 million tons of coal imports, mostly lignite,” said Lu.
China’s hunger for American coal in doubt Published: May 17, 2013
But a recent report by Wall Street colossus Goldman Sachs says this will be a transformational year for China, with its seaborne coal imports dropping for the first time since the global financial crisis of 2007 and 2008 and continuing to decline in the coming years. China’s own coal production has spiked, Goldman Sachs said, along with investment in Chinese railroads to move its coal.
China, with its cities shrouded in smog, also is trying to improve energy efficiency and diversify its fuel mix, including investments in nuclear energy and wind power, according to Goldman Sachs. Deutsche Bank also said in a report released this month that there are increasing signs of “softer Chinese coal demand growth going forward.”
You can be a government official but you still have to breathe
China's new leadership seems to have a new slogan - "control coal" - and Australia's coal exporters underestimate their resolve to cap consumption of the fossil fuel at their peril, a Chinese researcher says.
China's leaders under President Xi Jinping say they plan to enforce a target of limiting annual coal use to 4 billion tonnes – about half the world's total - by 2015.
While estimates vary about how close to the cap current consumption is, the determination to limit the amount burnt each year should be taken seriously, said Yang Yilun, a senior associate with the US-based World Resources Institute.
“People tend to think of China's coal demand as something that will rise forever, and so, overlook the potential risks,” Ms Yang said.
Australia's plans for new coal mines and expansions of old ones that will come on stream in five to 10 years “will probably be the most affected because there will be a serious mismatch”, she said. “You will be ready at a time China's coal demand has reached its peak, and [beginning] a sharp decline.”