Big coal producers’ differing export positions

The two largest coal producers in the world are of course the USA and China. The latest edition of the National Mining Association’s NMA International Coal Review reveals a significant increase in US coal exports for the first half of 2007. The review also found that imports increased during this time period, but at a slower rate than the growth seen in exports.

In total, US coal exports jumped 11.2%, an increase attributed to a weaker US dollar, which helped make the coal better value to overseas buyers. According to the report, steam coal exports increased 17.8% and metallurgical coal exports increased 6.7%. Exports also rose due to strong Asian demand, primarily in China and India. Elsewhere, bottlenecks in Australia, the world’s largest coal exporter, resulted in Europe having to rely on more US steam coal exports, while Indonesia, another major exporter, experienced difficulties related to an extended rainy season that impacted the ability to ship steam coal.

The review found that imported coal accounts for 3% of US consumption and has continued to trend upward, particularly as East Coast power generators located near port terminals have taken more coal from Colombia and Indonesia.

By contrast, Chinese coal exports in first half 2007 declined by 30.3% year-on-year, accompanied by a strong rise in imports. As Macquarie Research reports, facing “ever-increasing domestic demand and huge pressures to restrict coal mining investment and production, the Chinese government [has] announced several measures to reduce coal exports and encourage imports,” since the 1990s.

The National Development and Reform Committee (NDRC) issued a report entitled China Coal Industry Eleventh Five-Year Plan, in which it blueprints the coal industry’s development for the next five years by emphasizing large-scale production. In January, Macquarie Research “expressed doubts about the production target set by NDRC, believing that it seriously underestimated China’s future coal production and demand. Recently, the NDRC issued its survey result. This shows an entirely different picture.”

According to the NDRC’s coal mine capacity survey, China’s total coal mine capacity was 2,460 Mt by 2006 and will be 3,070 Mt by 2010. Macquarie further notes that “while the NDRC admitted that in 2006, 123 Mt [of] coal output was produced from output exceeding designed capacity, some coal mines in China’s key coal production regions were not able to reach their respective capacities due to transportation bottlenecks. Despite the fact that the government has intensified its investment into railway upgrades, we think the transportation bottleneck will continue to constrain capacity growth out to 2010.”

“The China Coal Trading and Distribution Association (CCTD), a Chinese coal sector consultancy, recently issued its projections for China’s coal consumption by 2010. The projection, coupled with NDRC’s capacity survey, showed that by 2010, Chinese coal supply will be able to meet its own demand with a small gap of roughly 50 Mt. However, the weak coal supply/demand balance is subject to variables including transportation bottlenecks, macro-economic policy and conditions and small coal mine closure, among others.

“We would also question the assumptions used on growth to 2010, which, already halfway though 2007, appear way too low – especially for metallurgical (steel).”