Demand for marine thermal coal will increase over the next decade

A precise understanding of the demand for thermal coal is important in the context of the continued interest in Australia, our region and the world in the future of coal.

Recent analysis suggests that Australia’s major global thermal coal producers may benefit from strong future growth in demand, especially in our region.

It is clear that the world market for thermal coal transported by sea has grown significantly in recent years.

Global volumes of thermal coal transported by sea doubled between 2006 and 2019, from 500 Mt (million tonnes) to 1,000 Mt, increasing in volume every year of this period, with the exception of 2015. The average growth of the The market was almost 40 Mt per year, or about eight times the average annual production. from an Australian thermal coal mine.

With the drivers of recent growth still largely in play, Commodity Insights predicts that Asian thermal coal imports will increase by over 270 million tonnes to over 1 billion tonnes per year over the next decade.

In the long run, government policy with respect to both energy sources and emission reduction are important drivers of coal’s share in power generation and therefore of import demand.

In this context, these forecasts will continue to be subject to changes in government policy, including emission reduction measures to meet the objectives of the Paris Agreement.

Asia is the dominant market for thermal coal. In 2006, the world market for thermal coal transported by sea represented a volume of approximately 500 million tonnes. Asia accounted for about 300Mt, of which the traditional importers from North Asia (Japan, Korea and Taiwan) accounted for 240Mt or 80 percent. China and India combined for less than 35Mt and South East Asia combined for 30Mt.

Since then, growth in global import demand has doubled to just over 1 billion tonnes, with all growth coming from Asia. China led the growth, overtaking Japan as the world’s largest importer in 2011, a status it still maintains. India followed, becoming the world’s second largest importer in 2014, then Southeast Asia accelerated, doubling its imports between 2011-18.

Several fundamental factors are behind this growth in demand:

• Strong growth in electricity demand across developing Asia, driven by strong economic growth, increasing industrialization and higher electrification rates

• Strong population growth throughout developing Asia, particularly India and South East Asia

• Significant coal-fired production capacity commissioned in many countries

• In some areas, inability of domestic coal production to keep pace with growing demand, amplified by increasing demand for high quality thermal coal (ie.

While past performance is no guarantee of future performance, these fundamental factors remain and suggest that growth in demand for thermal coal will continue for some time to come.

The developing regions of Asia – China, India, Thailand, Vietnam, Indonesia, Philippines, Pakistan and Bangladesh – all have low levels of electricity consumption per capita. The most developed of them – China – has a consumption level that is half that of Japan and a third of that of the United States. India’s per capita consumption level is only one-tenth that of Japan, and Bangladesh’s is less than one-twentieth that of Japan.

With their substantial populations (Asia contains eight of the 15 most populous nations in the world) and strong population growth expected (with nearly 300 million additional people expected by 2030 according to UN projections), these levels The relatively low consumption figures indicate that there is significant future growth in demand for electricity. across Asia.

For all Asian countries to reach Japanese consumption levels, massive investments in power generation capacity will be required. Although the development and growth schedule varies by country, the demand for power generation is likely to be met from a range of sources, including coal.

Commodity Insights forecast the growth of thermal coal imports through 2030 for some Asian markets, which is shown below. This is based on the following assumptions:

• Until 2025, forecasts are based on coal capacity additions

• Beyond that, forecasts are based on electricity demand forecasts and the estimated share of coal in the production mix, based on official government policy.

Imports are forecast to increase by over 270 million tonnes from 2019 to 2030, significantly more than Australia’s total thermal coal exports in 2019 (212 million tonnes).

While the demand for thermal coal is likely to decline in other regions, much of this decline will occur in countries such as the United States that use domestic coal, so the impact on the marine market will be limit. Conversely, much of the growth in Asian demand will rely entirely on higher quality imported coals, leading to increased volumes of thermal coal transported by sea.

The expected growth is not only robust, but widely distributed across the region.

Australian thermal coal is widely regarded as the benchmark coal in Asian import markets (being more energy intensive and therefore emitting less CO2 per kWh than lower tier alternatives).

If more Asian demand is met from Australia, it will not only contribute substantially to national wealth, but it will also provide electricity to developing Asian neighbors, with a lower CO2 emissions profile than that. produced from alternative coal sources.

Demand forecast

In 2018, Commodity Insights developed a detailed forecast of the demand for thermal coal by sea in Asia. An update to this forecast is presented below. Until 2025, forecasts are based on coal-fired heating capacity additions in each country, and beyond on electricity demand forecasts and the estimated share of coal in the production mix, which come from the targets. official government policies. Asian thermal coal imports are forecast to increase by 275 million tonnes from 2019 to 2030, a CAGR of 2.6%. This represents an annual growth of around 25 Mt.

Growth will be negative in 2020 due to the impact of COVID-19 but will be followed by a solid recovery. Most countries are expected to increase their imports, with only Taiwan (slightly) and Korea reducing volumes.

Importantly, five countries / regions are expected to increase demand by over 30 million tonnes, illustrating the extent of market demand growth for imported thermal coal – which is not dependent on China’s growth. . The breakdown of growth for 2019-30 by country is shown below.

The cumulative growth profile from 2007 to 2030 is shown below, incorporating the Commodity Insights forecast from 2020.

The overall Asian demand import forecast for 2025 and 2030 remains close to the 2018 forecast, but some country forecasts have changed.

The drivers of these changes are:
1. Base year effect. Commodity Insights applies an incremental model when forecasting import demand (that is, the estimated incremental demand for each year is added to the demand for the previous year). The base year for the current forecast was 2019, while the base year for the previous forecast was 2017.
2. Calendar of new capacity additions. In the short term (i.e. until 2025), Commodity Insights estimates demand growth based on the additional coal capacity put into service in each country. Plant level data is being applied for this fiscal year, and since the previous forecast some plants have been added / removed or have different development schedules. This is where the impact of COVID-19 is evident.
3. Changes in government policy. In the long run, government policy with respect to both energy sources and emission reduction are important drivers of coal’s share in power generation and therefore of import demand. Since the previous forecast, several governments have announced new political targets for the electricity mix.
Source: Commodity information