The Coal Market in 2019 by Hugh Lee

Published January 2019 by Tatiza Gondim, Marketing Manager, Coaltrans Conferences

The Coal Market in 2019: 

The outlook for the coking coal market in 2019 is rather different than that for the steam/thermal coal market.  As steam coal trade is by far the larger of these two markets, it is addressed first.

The prospects for steam coal trade are very different in the Atlantic from the Pacific.  In Europe, climate change policies and the now much higher price of carbon in the European Union Emission Trading Scheme (EU ETS) are reducing the use of steam coal.  This will lead to a fall of about 5% in steam coal imports this year after a 7% drop in 2018.  The other significant steam coal importing countries in the Atlantic (Brazil, Morocco and Turkey) are all likely to increase their imports, except Israel, but the net effect will be a decline in steam coal trade in the Atlantic.

China is a cause of considerable uncertainty in the Pacific market.  The government imposed import restrictions in the last few months of 2018 in order to help the domestic coal mining industry.  It is clear that there will be import restrictions this year but so far there has been no announcement about how these will be applied.  It is very likely that Beijing will try to limit 2019 imports to the 2018 level but this may not be successful, especially if the weather is very cold in the first quarter.

The other steam coal importers in the Pacific will all increase their intake.  The demand for power in SE Asia is rising rapidly and 14 GW of coal-fired power stations are under construction because coal is still seen as the lowest cost source of electricity, despite the great cost reductions for wind and solar.  The overall result will be a growth in steam coal imports in the Pacific of about 3% after some 5% in 2018.  Combining this with the drop in the much smaller trade in the Atlantic, global steam coal trade will increase around 2% in 2019, compared with 3% last year.

Steam coal prices have fallen some 20 $/t in recent months, mainly because the Chinese import restrictions were not anticipated.  However, there has been very little investment in new mining capacity in the exporting countries, other than Russia, to meet the increase in demand.   Therefore prices this year are expected to be on a level trend even though they are likely to continue to fluctuate from month to month.

The coking coal market is dependent on the fortunes on the steel industry.  So far this has been unaffected by climate change policies.  The only importing country where coking coal demand is falling is China, where there is a massive shift to electric arc furnaces using scrap iron and therefore away from blast furnaces using coke.  In contrast, Indian coking coal imports increased some 15% in 2018 and a further 8% rise is expected this year.  In a number of other significant countries (Brazil, Japan, S. Korea, Turkey), the trend is upward though not as fast.  Overall the net effect was a rise of about 4% last year and a similar increase is expected in 2019.

Coking coal prices last year were very volatile.  Prime hard coking coal fob Australia varied between 260 and 175 $/t, as the buyers and sellers entered and left the market reinforcing price movements.  This behaviour will continue this year but prices are likely to remain in a similar band though somewhat narrower, unless another cyclone hits Queensland when prices could again reach 300 $/t for a short period.

You can hear more from Hugh Lee and his overview on the week commencing on 12 March as part of the School of Coal Singapore.