National Australia Bank’s latest Minerals & Energy Outlook revealed that Australian thermal coal exports have dipped marginally – down 1% year on year in the first four months of 2016.
“The weak conditions in key Asian export markets will likely restrict further export growth in the short term,” was NAB’s dire prognosis, spelling out the cause as follows.
The bank noted that demand from key seaborne markets like China and India has continued to soften this year while supply remains plentiful – with considerable excess capacity in the form of idle higher-cost mines globally.
China’s imports fell considerably last year, and have continued to ease in 2016 – down 2.5% in the first five months of the year.
“There has been a slight uptick in imports across the past three months – likely associated with stronger coal consumption to support the property-led rebound in industrial activity – however as we have noted, we don’t believe that this trend is sustainable,” NAB said.
“Changing trade patterns in India are likely to weaken seaborne markets in coming years.”
Thomson Reuters estimates that Indian imports fell by 5.4% yoy in the first five months of 2016 as domestic material replaces imported supply.
India’s government has targeted production of 1.5 billion tonnes in 2020 – more than double the level in 2015 – 677 million tonnes.
NAB also cautioned that while Indonesia’s domestic consumption had been rising – up almost 15% in 2015 – restricting the country’s exports, delays to new coal-fired generation could result coal intended for domestic use being exported instead.
“That said, higher cost producers are likely to cut back further, with the Energy and Mineral Resources Ministry anticipating weaker production in 2016 and 2017 than the peak levels across 2013 and 2014,” NAB noted.
Thermal coal spot prices edged marginally higher in May and early June, pushing back above $US50/tonne, but lacked the momentum seen in other commodity markets, the bank said.
“The fundamentals of the market remain broadly weak, as exhibited by the decline in the annual Japanese financial year contract which was settled at $61.60/t, down from $67.80/t previously,” NAB said.