November 6, 2019 - A tenuous supply and demand balance is expected in the global seaborne thermal coal market in 2020 as trade dynamics shift and new growth areas emerge, speakers at the CoalTrans Conference in Vietnam said Tuesday.

Seaborne trade for thermal coal, the most widely used fuel for generating electricity, is expected to hit the 1 billion mt mark in 2019 with supply and demand roughly balanced or slightly weaker, according to Rodrigo Echeverri, the head of research at Noble Resources International.

"The high calorific value (CV) coal is over supplied while the low CV is not," said Echeverri at the event.

S&P Global Platts Analytics has forecast the seaborne trade for thermal coal for 2019 at 994 million mt and for 2020 at 1.015 billion mt.

Demand for thermal coal has dwindled from Far East consumers such as Japan, South Korea and Taiwan, dropping by about 12 million mt year on year, which is similar to the drop seen in Europe.

However, the Japanese demand in 2020 is expected to be slightly better due to the planned maintenance of several nuclear power plants.

"The seaborne thermal coal market is roughly a 1 billion mt market. For this year, we see the seaborne thermal coal market oversupplied by around 60 million mt," said Matthew Boyle, lead analyst at S&P Global Platts.

"Seaborne thermal coal demand growth, as well as coal consumption, is slowing in China, the largest seaborne importer. The increase in Southeast Asian demand, particularly from Vietnam, as well as Indian demand is not enough to offset the decline in Chinese seaborne import volumes," added Boyle.

Due to lower Chinese demand, Australian producers have started to concentrate on higher quality thermal coal production.

"Falling seaborne coal prices have seen US and Colombian coal exports decline in H2 2019," said Boyle, who expects emerging demand markets such as Pakistan and Bangladesh to see growth in coal consumption.

Vietnam's Burgeoning Coal Demand

The spike in Southeast Asian demand, especially with Vietnam expected to see significant growth in imports, is offering solace to producers in Indonesia, Australia and the Russian Far East.

"Imports of coal into Vietnam would be about 40 million mt in 2019 and should exceed 50 million mt in 2020," said Andy Bui, vice-president at Vietnam's An Viet Phat Energy.

Vietnam's coal imports are estimated to reach 80 million mt by 2025 and 110 million mt by 2030, according to Bui.

While thermal power generation accounts for the major share of coal consumption in Vietnam, demand from other industries like cement manufacturing and users of steam in the paper as well as dyeing industry was also seeing significant growth.

India, meanwhile, continues to remain the other major destination and is expected to see a sizable increase in imports.

"India's total power generation and [especially] its thermal power generation has been quite poor. But [state-owned miner] Coal India's production has been dismal in 2019," said Echeverri, while estimating Indian imports of thermal coal to increase by 12 million mt in 2020 compared with imports in 2019.

India is expected to import 190 million mt during 2019 and 209 million mt in 2020, according Platts Analytics.

Pacific to Remain Key Supply Center

The Pacific region is expected to dominate the supply side with additional tons coming from Indonesia and Russia, while production is likely to drop in the Atlantic supply centers such as the US and Colombia.

"Indonesian supply is quite nimble and the top 10 miners have capacity to produce an additional 50-70 million mt of coal," said Patricia Gaol, market research manager at Adaro Coaltrade Service International.

Speakers at the conference said that the upcoming expiry of Coal Contract Of Work, or CCOW, mining licenses for many miners in Indonesia could encourage them to increase their production.

"The current CCOW holders would try to maximize their revenue before its expiry," said Sreejith Chalakkal, marketing manager at Bayan Resources. The exports from Russia have also been growing. "[Russia] will be a leading supplier of thermal coal over the next 20 years. They could be number one or two. Perhaps by 2028 it will exceed Australia," Echeverri said.

Boyle said the thermal coal market is expected to address the oversupply in the seaborne market in 2020 and will bring the seaborne market back into balance.

"As we expect a flat seaborne thermal coal price during 2020, we will continue to see year on year declines in marginal production in the US, Indonesia and Australia," he said, adding that the oversupply forecast for 2019 and 2020 was at 60 million mt and 8 million mt, respectively.