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Australian Steaming Coal Production and Exports Set to Increase in 2010-11 based on Continued Strong Asian Demand

September 22, 2010

This week, the Australian Bureau for Agricultural and Resource Economics (ABARE) published the September quarterly ‘Australian Commodities’ report.  In it, forecasts demonstrate continued positive outlook for thermal coal for Australian export volumes and value in 2010/2011.

Source: ABARE/BRS September 2010

As with any scenario analysis, the projections are only as good as the assumptions.  Such assumptions include taking a position on relative currency prices, supply from export competitors, electricity production dynamics in export markets, and regional economic growth.

ABARE expects thermal coal trade to be supported by continued strong demand, especially in China and India.  The report suggests that prices will remain above $85 through 2011, with trade volumes increasing 3% to 745 Mt in 2010 and again by 5% in 2011 to 780 Mt.

Source: ABARE/BRS September 2010

In China, despite a relative decline in electricity from thermal power plants in 2010 due to increased utilisation of hydropower, thermal coal imports continued to increase.  While in 2010 imports stood at 92 Mt, in 2011 it is projected to be 110 Mt. 

Imports of thermal coal in China have been underpinned by relatively low international freight rates and continued infrastructure constraints in China’s major coal transport corridors.

The report does not comment on recent developments in China which imply a possibly signficant reduction in thermal coal utilisation and import.  The Chinese Government announcement of industrial closures, ostensibly aimed at generating energy efficiency and greenhouse gas abatement outcomes, was likely made after the ‘Australian Commodities’ report went to press.

Indian thermal coal imports are forecast to increase by 40% to 68 Mt in 2010 and a further 13% to 77 Mt in 2011.  In 2010 alone, India will commission 13 gigawatts of coal-fired generation capacity.  Coal consumption is increasing at a faster rate than domestic production.

European Union imports of steaming coal will decline, while Japan’s imports will remain steady at 120 Mt and Korea will increase in 2010 by 10% on a year earlier to 91 Mt.  The contribution of coal to electricity generation in Japan has declined from 73% in late 2008 to just 57% in early 2010 – mostly associated with an increase in generation from nuclear capacity.

Australia will be a major beneficiary of such continued demand, according to ABARE’s forecast. 

Meanwhile, Indonesia will remain the largest thermal coal exporter by far and will increase exports.

Australia’s thermal coal production decreased 2% to 200 Mt and exports decreased to 135 Mt in 2010, while production is forecast to increase by 15% to 229 Mt and exports to increase by 19% to 160 Mt in 2011.

Due to lower contract prices and Australian dollar appreciation, earnings from thermal coal exports decreased 34% in 2010 to $11.9 billion.  In 2011 this value is forecast to increase to $15.8 billion – an increase of 33%.

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