HONG KONG–The flow of the world’s seaborne coal trade is shifting as China, the top consumer, seeks to rely more on domestic output while cutting its use of the fuel.
India, the world’s second-largest coal consumer, is picking up the slack, pulling in more coal cargoes as prices slump.
India’s coal imports could rise by more than 8% this year to 170 million metric tons, research firm Wood Mackenzie estimates, putting them closer to those of China, which imported 207 million tons last year.
“India is at the center of the seaborne thermal coal market, given Chinese demand is slowing down,“ said Prakash Sharma, research director for Pacific coal markets at Wood Mackenzie.
India’s coal reserves in the ground are among the largest in the world. But production by stateowned Coal India Ltd. has failed to keep pace with demand, which has increased the need for imports. The election of an industry friendly government led by the Bharatiya Janata Party has brightened the outlook for economic growth in India, which could in turn increase industrial demand for power, Mr. Sharma said. The Asian Development Bank predicts India’s economy will grow 7.8% in the year starting April 1, compared with an expansion of 7.4% in the current year.
Indian buyers are also taking advantage of the slide in coal prices, which have dropped to near sevenyear lows. Thermal coal was trading last week around $60 a ton free on board from Newcastle, the main global benchmark price.
Prices have slumped because of a combination of oversupply in the market and relatively weak demand.The depreciation in the local currencies of producers such as South Africa and Russia against the dollar has given them room to cut their dollar-denominated selling prices as well.
China was once the “buyer of last resort,“ Macquarie Group Ltd.said in a recent note, and exporters from all over the world had come to rely on its growing consumption to buoy the market. But last year, Chinese consumption declined for the first time in 14 years, which led to a collapse in coal prices.
“Coal exporters in Australia and Indonesia were blindsided by the sudden decline in Chinese imports and are now left fighting for market share in India,“ said Ted O’Brien, president at Doyle Trading Consultants LLC. “Coal prices are down 10% this year and are unlikely to rebound in the absence of a resurgence in Chinese demand or significant supply reductions.“
China accounts for half of global coal consumption. Aside from efforts to reduce dependency on coalfired power, China is building better rail links between its coal-producing regions and areas with power-generation plants, Alex Tonks, a Sydney-based managing consultant with consultancy CRU Group, said on the sidelines of a mining industry conference in Hong Kong last week.Better infrastructure to transport coal would mean China could rely less on imports.
Chinese demand for imported coal has also been weakened by the imposition of tariffs ranging between 3% and 6% on different grades late last year, analysts said.
Proposed regulation could introduce more-stringent limits on the quality of coal that is allowed to be imported into China, said Marius Toime, a legal partner at Berwin Leighton Paisner who specializes in the resources sector. He said lengthy technical inspections were already slowing coal imports into China.
Low spot-coal prices have tempted Japanese and Korean customers to step up purchases in recent weeks, Mr. Toime said.
Typically, Japanese customers prefer to pay a premium to secure high-quality coal through long-term contracts, he said. But they have been buying coal for immediate delivery in the last two weeks.