--Clyde Russell is a Reuters market analyst. The views
expressed are his own.--
By Clyde Russell
LAUNCESTON, Australia, Jan 2 Coal producers
supplying Asia are likely to have a busy year, but that increase
in demand won't necessarily translate into much higher prices.
The price of spot coal at Australia's Newcastle port
, the regional benchmark, recovered 14 percent from
a near three-year low in the last two months of the year to end
2012 at $92.25 a tonne.
But this was still down 20 percent over the whole of 2012,
making coal one of the worst performing commodities in a year
during which the International Energy Agency predicted it would
take over from oil as the world's top fuel by 2017.
Coal's poor performance belied a 27 percent jump in China's
imports in the first 11 months of the year, and a similar 26.8
percent gain in India's purchases in the first eight months of
the fiscal year that started in April.
But global supplies of the fuel are plentiful, with Barclays
estimating that an additional 82 tonnes, or 10.5 percent, made
its way onto world markets in 2012.
An additional 32 million tonnes may be available in 2013,
Barclays said in a report dated Dec. 21.
But as growth in supply this year will be less than half of
what it was in 2012, there is potential for the seaborne coal
market to tighten a bit, especially if demand in Asia's two
growth centres for the fuel continues at the same pace.
Assuming China's growth rate for the first 11 months is
maintained in December, it will have imported about 49 million
tonnes more in 2012 than in 2011.
India experienced a massive 73.6 percent jump in imports to
10.85 million tonnes in November, which boosted the overall rate
for the April to November period.
Nonetheless, India may import as many as 28 million tonnes
more in calendar 2012 than it did in 2011.
This means together India and China may have imported an
additional 77 million tonnes, not too far off Barclays estimate
of 82 million tonnes in extra supply.
Of course, these two nations aren't the only determinants of
the overall coal market balance, but they are likely to be the
key swing factors in 2013, especially as the situation in
Europe, the second-largest coal importing region, remains
It seems that cheap global prices spurred an increase in
consumption in Europe, where coal gained at the expense of more
costly natural gas for power generation.
It's likely that coal will remain competitive against gas in
Europe in 2013, making it a reasonable assumption that imports
will be at least steady.
This once again will leave Asia's demand growth as the
likely determinant of price, assuming the growth in available
supplies is modest.
Predicting demand for imported coal in China has become
tougher given the government's decision to take a more hands-off
approach to regulating the market.
The government will scrap a cap on spot thermal coal prices
and no longer intervene in contracts between sellers and
utilities, the National Development and Reform Commission said
This likely means that utilities will lose access to
supplies at preferential rates, but will benefit from
shorter-term contracts that will be more flexible.
It also means that imported coal will be able to more freely
compete with domestic supplies, which has the potential to boost
imports as long as the prices are competitive.
The price of domestic coal was 634 yuan ($101.77) a tonne
last week, according to data from sxcoal.com, and $114.93 a
tonne, according to McCloskey's Quinhuangdao price
Given freight costs and import duties, Newcastle coal can
only compete if it stays around the current price, meaning there
may be volume gains available for producers in Australia,
Indonesia and South Africa, but only if they accept prices can't
rise much higher.
There is a fairly strong correlation between China's coal
imports and the Newcastle price, with a decline in inbound
cargoes in the third quarter of last year coinciding with a
slump in prices.
India's coal imports are also likely to experience growth in
2013, mainly because domestic production is once again likely to
fall short of targets.
Coal India aims to produce 470 million tonnes in the year to
March 2013, a number the company's chairman S. Narsing Rao said
was "sacrosanct" in an interview with Reuters last month.
However, in the first eight months of the fiscal year, Coal
India, which accounts for 80 percent of the nation's output,
managed to mine 265 million tonnes. If this rate was maintained
for the remaining four months, full-year production would be
just shy of 400 million tonnes.
Even if Coal India managed to boost monthly output to around
41 million tonnes, which was the target for November, it would
still only produce about 425 million tonnes in 2012-13, a number
below the company's target by about 45 million tonnes.
Any shortfall is likely to be sourced from overseas markets,
meaning India's import demand may continue to post strong gains.
The key to Asian coal demand in 2013 is likely to be just
how far short India's domestic output is from the target, and
how the deregulation of China's vast domestic market plays out.
(Editing by Miral Fahmy)