1 EURACOAL Market Report 2/2016 October 2016 WORLD COAL MARKET DEVELOPMENTS - WORLD COAL PRODUCTION AND SEABORNE TRADE Important events Thermal coal prices are improving, following the earlier gains in coking coal prices, mainly driven by Chinese supply reduction. ARA prices increased from around 45 USD/tonne in January 2016 (cif NWE) to over 60 USD/tonne in August 2016, slightly pushed also by slowly recovering sea freight rates. The Chinese government relaxed its curbs on coal output, increasing the allowed number of work days at mines and their output. In Australia, coking coal producers are still negotiating with Asian buyers for an agreed price. Competitive freight rates offered an opportunity for some Australian steam coal to be exported to Middle Eastern ports. Production losses of 2015 have been mostly recovered. Indonesia’s production is unlikely to follow prices, given increased Chinese output. India’s imports are expected to decrease, due to higher coal prices and thin profit margin s at Indian coal-fired power plants. Coal India Limited (CIL), the largest Indian coal company (64% of the Indian market in 2015-2016), expressed its ambition to increase production by about 100 Mt/year, from 539 Mt in 2015-2016 to 908 Mt in 2019-2020. Taking into account the Paris Agreement, CIL estimates that coal demand will increase from 832 Mt in 2015 to 2 000 Mt in 2032-2033. United States’ coal producers were helped in the last months by low temperatures and higher prices, but find it difficult to ramp up production, mainly due to financial constraints. Vietnam, previously a coal exporter, is now a net importer, tripling coal imports from January to August 2016, from 3 Mt to 9 Mt. In Egypt, the government aims to add 10 GW of coal capacity, leading to an additional 25 Mt of coal imports. Low coal prices encouraged cement producers to switch from gas to imported coal. Producers estimate that by 2025 the country’s 90 Mt cement production will require 10 Mt of coal imports. In Japan, a new 1.3 GW state-of-the-art coal-fired power station is scheduled to replace by 2023 some old oil and gas plants at Yokosuka, requiring 3.5 Mt/year. The developer is JERA, a joint venture between Tokyo Electric Power and Chubu Electric Power. JERA also signed a non-binding agreement for the acquisition of EDF Trading’s coal and freight business in October 2016. Subject to final agreement, EDF will keep a minority equity interest. The deal, according to JERA, includes EDF Trading Australia Pty Limited, which holds a 7.5% interest in the Australian Narrabri coal venture and Amstuw BV which operates the Rietlanden coal terminal in the Netherlands.
Transcript
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EURACOAL Market Report 2/2016
October 2016
WORLD COAL MARKET DEVELOPMENTS - WORLD COAL PRODUCTION AND
SEABORNE TRADE
Important events
Thermal coal prices are improving, following the earlier gains in coking coal prices, mainly driven by
Chinese supply reduction. ARA prices increased from around 45 USD/tonne in January 2016 (cif NWE)
to over 60 USD/tonne in August 2016, slightly pushed also by slowly recovering sea freight rates. The
Chinese government relaxed its curbs on coal output, increasing the allowed number of work days at
mines and their output.
In Australia, coking coal producers are still negotiating with Asian buyers for an agreed price.
Competitive freight rates offered an opportunity for some Australian steam coal to be exported to
Middle Eastern ports. Production losses of 2015 have been mostly recovered.
Indonesia’s production is unlikely to follow prices, given increased Chinese output.
India’s imports are expected to decrease, due to higher coal prices and thin profit margins at Indian
coal-fired power plants. Coal India Limited (CIL), the largest Indian coal company (64% of the Indian
market in 2015-2016), expressed its ambition to increase production by about 100 Mt/year, from 539 Mt
in 2015-2016 to 908 Mt in 2019-2020. Taking into account the Paris Agreement, CIL estimates that coal
demand will increase from 832 Mt in 2015 to 2 000 Mt in 2032-2033.
United States’ coal producers were helped in the last months by low temperatures and higher prices,
but find it difficult to ramp up production, mainly due to financial constraints.
Vietnam, previously a coal exporter, is now a net importer, tripling coal imports from January to August
2016, from 3 Mt to 9 Mt.
In Egypt, the government aims to add 10 GW of coal capacity, leading to an additional 25 Mt of coal
imports. Low coal prices encouraged cement producers to switch from gas to imported coal. Producers
estimate that by 2025 the country’s 90 Mt cement production will require 10 Mt of coal imports.
In Japan, a new 1.3 GW state-of-the-art coal-fired power station is scheduled to replace by 2023 some
old oil and gas plants at Yokosuka, requiring 3.5 Mt/year. The developer is JERA, a joint venture between
Tokyo Electric Power and Chubu Electric Power.
JERA also signed a non-binding agreement for the acquisition of EDF Trading’s coal and freight business
in October 2016. Subject to final agreement, EDF will keep a minority equity interest. The deal, according
to JERA, includes EDF Trading Australia Pty Limited, which holds a 7.5% interest in the Australian Narrabri
coal venture and Amstuw BV which operates the Rietlanden coal terminal in the Netherlands.
Spain’s coal production dropped in the first half of 2016 to 1.2 Mt (-14%), while coal imports decreased
to 6.6 Mt (-25%) compared with the same period in 2015. Coking coal imports remained almost at the
same level, 1.0 Mt, while steam coal dropped to 5.6 Mt (-29%).
The drop follows a significant reduction in coal-fired generation (-56%), 10.1 TWh in the first half of the
year. Total generation decreased by 3%, to 124 TWh. Spanish coal companies struggle to compete with
imports and a distorted electricity market because of subsidised renewables.
On political developments, there were general elections in Spain on 20 December 2015, 26 June 2016
and there may be another one on 18 December 2016, which adds to the political uncertainty.
Turkey
Turkey produced 25.2 Mt of lignite (+22%), a strong recovery after the decrease in 2015, and 0.7 Mt (no
change) of hard coal in the first half of 2016. Hard coal imports in the first six months were 16.1 Mt, a
10% increase in comparison with the same period in 2015.
Turkey introduced an additional tax, on a gross weight basis, on imported coal used for power
generation, entering into force on 2 August 2016 (Decision 2016/9073).
The tax changed to an index based pricing in October, as following:
Tax = 70 USD – ICE Rotterdam Coal Futures Index
The additional tax does not apply to EU member states, EFTA members (Iceland, Liechtenstein, Norway,
Switzerland), Israel, the West Bank and Gaza, Macedonia, Bosnia Herzegovina, Morocco, Tunisia, Egypt,
Georgia, Albania, Jordan, Chile, Serbia, Montenegro, Kosovo, South Korea, Mauritius and Malaysia.
The tax affected the traditional coal exporters to Turkey: Colombia, Russia, South Africa and the US and
has allowed Polish producers, exempted from the tax, to almost double their exports on the Turkish
thermal coal market.
The total capacity of coal-fired power plants working on imported coal was 7 455 GW in 2016: 1 320 MW
Isken and 1 200 MW Atlas in South Turkey; 350 MW Izdemir, 1 605 MW Icdas, and 190 MW Colakoglu
on the Western coast; and 2 790 MW Eren in the north. A new power plant of 660 MW developed by
the Cenal Group is expected to open in Western Turkey in September 2017, as the first phase of a
1.32 GW project. The new power plant will increase Turkish coal imports by 3.2 Mt/year.
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United Kingdom
Coal-fired electricity generation decreased significantly in H1 2016 (-58%), to 18.15 TWh, in comparison
with the same period in 2015. This follows negative clean dark spreads, caused by the UK carbon tax. 4.8 GW of coal-fired capacity was closed in 2016: Longannet 2.4 GW; Ferrybridge 1.0 GW and Rugeley,
1.0 GW. Eggborough power plant, scheduled to close in 2016, will continue production. The remaining
coal-fired power plants in the UK are: Aberthaw B (RWE); Cottam (EDF); Drax (Drax); Eggborough
(Eggborough Power); Fiddlers Ferry (SSE; only for winter 2016/2017); Kilroot (AES); Ratcliffe (Uniper);
Uskmouth (SIMEC) and West Burton A (EDF).
Gas-fired electricity generation increased by more than 50%, while nuclear and wind remained at similar
levels as the same period of the previous year.
Consequently, coal consumption was low, which drove UK coal production lower (-66%) to 1.9 Mt and
coal imports (-77%) to 3.8 Mt, the main suppliers being Colombia and Russia. Coal-fired power plants
were still using their large coal stocks made before the carbon tax kicked in.
On corporate news, a new surface mine proposed by Banks Group was approved by the local
government, but later called in for review by the Secretary of State.
Ukraine
Ukrainian coal production declined from 19.4 Mt to 19.0 Mt, while imports reached 12.8 Mt in the first
half of 2016, figures which include production from the non-governmental controlled territories.
The territorial problems forced DTEK to import coal from Poland and South Africa for its power plants.
Russia allows coal imports over the frontier for humanitarian reasons to coal power plants near the
border. Coal from non-government controlled territories is shipped to the rest of Ukraine by rail.
Ireland
An estimate of coal imports for the first six months of 2016 in Ireland is 1.0 Mt (-17%). This includes
bituminous coal, anthracite, patent fuel and BKB. The estimate for peat production is 1.5 Mt for the first
six months of 2016 (-16%).
Netherlands
With 3.5 GW of new coal-fired capacity added to the Dutch grid last year, coal imports to the Netherlands
increased from 6.6 Mt in H1 2015 to 6.9 Mt in H1 2016.
On political developments, the Dutch parliament has invited the government for discussions on carbon
emissions which concerns RWE, Uniper and Engie.
LIGNITE
Producing country 2016 (1-6) 2015 (1-6)
Mt Mt
Bulgaria* 11.9 16.2
Czech Republic 18.6 18.8
Germany 83.8 85.5
Greece 14.0 22.7
Hungary 4.3 4.3
Poland 28.3 31.6
Romania 10.2 11.4
Slovak Republic 1.0 1.0
Slovenia 1.6 1.6
Total 173.7(-10%) 193.1 *classification of Bulgarian hard coal production changed, now classified as lignite
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Bulgaria
Bulgarian lignite production decreased by 27%, to 11.9 Mt in the first half of 2016 in comparison with
the same period in 2015. Coal imports dropped by 43% to 0.4 Mt.
The 400 kV Interconnection Power Line between Maritsa East 1 (BG) and Nea Santa (GR) is progressing,
with strong political support to allow more Bulgarian electricity exports to Greece.
Germany
Lignite production in the first half of 2016 was 83.8 Mt, 2% below H1 2015. Lignite consumption, at
75.8 Mt, was 1.2% lower than the same period in 2015.
In terms of primary energy consumption, lignite decreased by 1.6% and hard coal decreased by 1.9%;
while gas and renewables had gains. Clean dark spreads were lower than clean dark spreads for some
months, but still positive.
Greece
Preliminary data shows that electricity production from coal-fired power plants was half the level seen
before the crisis of 2008-09. Lower electricity consumption, environmental restrictions on old units, low
oil and gas prices, low imported electricity prices (mainly from Bulgaria, Albania and Italy) and increased
lignite production costs, caused by an increased stripping ratio, all had a negative impact on lignite.
Greek lignite production decreased to 14.0 Mt (-38%) in the first half of 2016 in comparison with the
same period in 2015. The construction of the new 650 MW lignite power plant Ptolemaios V started and
is planned to be operational in 2019. A project for a new unit at another power plant is now in
discussions.
Hungary
Hungary produced 4.3 Mt of lignite in the first six months of 2016, the same output as in H1 2015. Coal
imports remained almost the same as well, at 0.7 Mt.
On political developments, there is no change in Hungarian energy policy; the government supports the
expansion of coal use, including in the chemical industry.
Romania
In the first six months of 2016, 10.2 Mt of lignite were produced, 11% less than the same period in 2015.
Imports were 0.5 Mt, the same level as H1 2015.
The main Romanian lignite company, Complexul Energetic Oltenia, is recovering from losses incurred
during the first part of the year. However, continuous managerial instability is affecting the company.
On hard coal, the only producer, Complexul Energetic Hunedoara with both mines and power plants, is
in insolvency. Restructuring is in progress with state aid under Council Decision 787/2010/CE, as
approved by European Commission decision C(2015) 2652 final.
Initially, four mines were scheduled to continue after 2018, but new discussions left only two mines to
continue (Livezeni and Vulcan). Also, only 400 MW capacity of the 1 225 MW currently installed will
remain (a 150 MW unit at Mintia TPP, modernised in 2005, and the 235 MW unit 3 at Paroseni TPP,
modernised in 2009). Nonetheless, this means that hard coal mining and capacity in Romania will
continue after 2018, possibly under a Service of General Economic Interest (SGEI) exemption.
Bosnia and Herzegovina
A 300 MW lignite-fired power plant came online in September 2016 at Stanari in northern Bosnia and
Herzegovina. The power plant was built by China's Dongfang Electric Corp and financed by the China
Development Bank with a €350 million loan. During trial operations in August 2016, average coal
consumption was 1.17 kg/kWh. The Stanari mine, with 108 Mt of reserves, has increased its output
capacity from 0.6 Mt to 2 Mt per year. Bosnian lignite parameters are (a.r.): LCV: 9.1 MJ/kg
(2 200 kcal/kg), moisture: 49%, ash: 3.8%, sulphur: 0.13%. A new belt conveyor and a semi-mobile crusher
for processing coal were purchased from the German manufacturer FAM Magdeburger with the help of
a loan totalling €15.35 million from Sberbank of Russia.
In July 2016, Ugljevik lignite power plant signed a FGD supply contract with Mitsubishi Hitachi Power
Systems and RUDIS of Slovenia. The 300 MW power plant, in service since 1985, is expected to re-start
commercial operations in July 2019.
TABLE 1
World Market Price evolution (Coal, Coke, Freight, Crude Oil)
MCIS Steam Coal Marker Price (7000kcal/kg)
Jan Feb March Apr May June July Aug Sept Oct Nov Deccif-NW EuropeSteam Coal 2015 77.90 68.76 73.58 69.22 70.39 66.86 69.41 67.25 64.40 60.55 63.12 58.00(US$/tce) 2016 56.19 52.34 53.00 52.61 54.48 59.31 62.94 71.19
EU Hard coal and lignite production and consumption
COUNTRY1-6 2016
Mt
1-6 2015
Mt
1-6 2016
Mt
1-6 2015
Mt
Czech Republic 3.6 3.8 1.1 1.0
Germany 2.6 4.5 19.9
Poland 34.3 34.4 27.3 14.0
Romania 0.4 0.7 0.1
Spain 1.2 1.4 7.7
United Kingdom 1.9 5.6 7.4 17.5
EU-28* 44.0 50.4 35.8 60.2
Ukraine 19.0 19.4
Turkey 0.7 0.7 7.5 7.0
Lignite production
COUNTRY1-6 2016
Mt
1-6 2015
Mt
1-6 2016
Mt
1-6 2015
Mt
Bulgaria** 11.9 16.2 13.8 16.2
Czech Republic 18.6 18.8 14.4 14.7
Germany 83.8 85.5 75.9 76.8
Greece 14.0 22.7 15.1 20.6
Hungary 4.3 4.3 4.0 4.1
Poland 28.3 31.6 31.1
Romania 10.2 11.4 10.8
Slovakia 1.0 1.0 1.0
Slovenia 1.6 1.6 1.5
EU-28* 173.7 193.1 123.2 176.8
Serbia 17.7 18.1
Turkey 25.2 20.7 20.9 18.7
**classification of Bulgarian hard coal production changed, now classified as lignite
Hard coal productionConsumption of hard coal for
power generation
Lignite consumption for
power generation
TABLE 6
EU Hard coal imports
COUNTRY1-6 2016
Mt
1-6 2015
Mt
1-6 2016
Mt
1-6 2015
Mt
1-6 2016
Mt
1-6 2015
MtAustria* 2.2 1.5
Belgium 1.8 1.7
Bulgaria 0.0 0.0 0.3 0.7 0.4 0.7
Croatia 0.0 0.5 0.5 0.5
Czech Republic 0.6 0.6 0.7 1.0 1.3 1.6
Denmark 1.3 1.5 1.3
Finland 0.5 0.4 0.8 1.0 1.3 1.4
France 6.4 6.5
Germany 6.1 6.1 20.1 20.6 26.2 26.7
Greece 0.1 0.0 0.2 0.1
Hungary 0.6 0.7 0.1 0.0 0.7 0.7
Ireland 0.0 1.2 1.0 1.2
Italy 7.5 9.6
Netherlands 1.9 1.7 5.0 4.9 6.9 6.6
Poland 1.0 1.4 2.9 2.1 3.9 3.5
Portugal 0.0 2.6 1.9 2.6
Romania 0.5 0.5
Slovakia 0.0 0.0 1.9 1.8 1.9 1.8
Slovenia 0.0 0.0 0.0 0.0
Spain** 1.0 0.9 5.6 7.9 6.6 8.8
Sweden 0.8 0.4 1.0 1.2
United Kingdom 1.4 3.0 2.4 13.6 3.8 16.6
Others
EU-28 77.5 95.1
Ukraine 1.1 11.7 12.8*** 3.3
Turkey 16.1 14.6
Serbia 0.5
provisional data in italics
* Austria: Hard coal, lignite, brown coal briquettes and coke (statistical differences included).**Spain: steam coal includes anthracite***includes non-governmental controlled territoriesSource: EURACOAL members, McCloskey, VDKi, national government statistics
Coking coal imports Steam coal imports Total hard coal imports
