China and India, Leaders of The World Coal Market

As with any scenario analysis, the projections are only as good as the assumptions. Such assumptions include taking a position on relative currency prices, supply from export competitor, electricity production dynamics in export markets, and regional economic growth. 

The Coal Market is an open market. It is only divided by an imaginary line separating the market in two; the Atlantic and the Pacific. The Atlantics has been left far behind that of the Pacific. China and India, the two countries that share 50% of the world’s growth, play a great role in shaping the current coal market. The already developed market indicates that the 2011 coal price would stay high and it is expected to reach the same price as that closing the 2010. The price is expected to stay at the level of US$ 100. The volume of the coal trade would definitely increase by three percent from 745 million tones in 2010, up to 780 million tonnes by next year. 

China, though relatively decreases the development of their thermal power plants and increases the use of hydropower plants, the coal imports of, china is projected to increase. Next year, the market expects a boost of the country’s coal demand reaching almost 200 million tonnes. China’s sky-rocketing demand would not only control the world’s coal price, but also make the market reactively look for alternative sources from places relatively considered too far before, such as South Africa and Colombia. Such a high import rate has also been encouraged by the relatively low international freight-rate, and infrastructure constraints, especially the coal transport corridors, that have been going on up to now. 

India’s coal import have been projected to increase up to 98 million tonnes by 2011. In the long run, India has been even projected to become one of the leaders of the world’s developed coal market, especially Indonesia’s coal export market. Coal is now used to generate 87,858 megawatts of electricity power, with the installed capacity of approximately164,509 megawatts. By 2016, India is projected to have the coal imports reaching 200 million tonnes, as the country would carry out plans to operate its coal-fired power plants, including the 18.8 Giga-watt plans to be completed by March 2011. It is said that India is the golden child at the moment, in the coal industry. 

The fast growth of coal demand of the two countries has been encouraged by their interest in generating the economic growth. With around 6.7 billion people of the world, India with its 1.15 billion, and China with its 1.35 billion people have to seriously think on how to encourage growth in the industrial sector through electricity power generation development. Moving forward, regarding their high demand, they have to make a thorough estimation on the available indigenous resource, cost of energy, and present technology of power generation.

Dealing with the Market

Up to the second week of December, almost all of the coal price indexes have stayed around the US$ 110 level, including those of the Newcastle (Newc), Barlow Jonker (BJI), and Richards Bay (RB). Newcastle Index was at US$ 115.81 level, BJI was at US$ 113.95, and RB Index was not far from that of Australia’s which stayed at US$ 109.93.

Next year, the coal price is expected to stay around those of 2010. A number of coal-fired power plants in China have made early preparation on coal inventory in their stockpiles since early September to accommodate the supply of the coming winter. This effort has been based on the past experience dealing with the unpredictable low temperature during winters. One of the stockpiles is in Qinhuangdao which has 15% more stockpiles reaching approximately 6.73 million tones. 

Beside the individual factor of the importer country, factors concerning oil and gas have been inseparable dealing with the coal price. Organization of the Petroleum Exporting Countries (OPEC) has even predicted the oil demand will be lower than that of this year. In its 158^th conference in Quito, Ecuador (in December 11,2010), OPEC has called on member, as well as non-member countries to work together in stabilizing the oil-price. Many analyst have estimated based on the growth of supply , the increasing coal price has been due to the weekend US4 exchange rate. Beside that the gas price would become one element that would influence the fluctuation of the coal price for the next several years. Coal will have to face the market competition against gas-generated power plants through 2011 with the estimated decrease of international gas price.  

Harsh competition among energy commodities is approaching before us. The coal prices have been relatively stabilized throughout 2010. The high price opportunities would be open only in spot markets. In the end, the coal industry should not inwardly focus, but need to open eyes to the facts that coal is competing with gas and find ways reduce the cost of coal production.