2017 at a glance - Thermal Coal
Adani viable on current forecasts for thermal coal prices by the Federal Government?
Wednesday 11 January 2017
The latest forecast for Australian thermal coal prices by the highest economic office in the land, would, in theory, make Adani’s proposed Carmichael mega-mine in the Galilee Basin breakeven or better on a cash basis for the next two years.
Gayathiri Bragatheswaran from the Office of the Chief Economist, forecast this week that annual thermal coal prices (contracted) this year will settle around $US75 a tonne, before falling 11 percent to $US67 a tonne in 2018.
In 2015, a theoretical cash cost of coal production at the Carmichael mine of around $US62 a tonne was in circulation, which several months later India’s Business Today magazine claimed had been revised to around $US50 a tonne by Adani in the new post-boom era.
While even at the higher end of the spectrum, the Carmichael coal mine could have economic legs, it’s important to remember that Adani has on many occasions said they were not too concerned about the fluctuating coal price. Instead, saying their major concern was having access to a very large, low-cost, quality thermal coal deposit that India could rely on for decades to come.
However, the quarterly report by the Office of the Chief Economist did make some less bullish observations about the amount of thermal coal expected to be imported by India.
“India continues to seek lower dependence on thermal coal imports, and in 2015 imports declined for the first time since 2003,” Gayathiri Bragatheswaran said in the Resources & Energy Quarterly
“This decline continued into 2016.
“Imports in the September quarter declined 37 percent year-on-year, and are forecast to decline 3.7 percent in 2017, to 155 million tonnes.”
However, while imports have been falling, the country's thermal coal energy demand is increasing with nearly 100 new coal-fired power plants currently under construction and scheduled to come online by the end of 2018.
So the issue in India is not growing demand, it’s how much of that demand will be imported according to the Office of the Chief Economist because the Indian Government wants the country to be less dependent on thermal coal imports.
State-owned miner Coal India - which is responsible for more than 80 percent of India’s coal production - has outlined plans to significantly increase thermal coal production through scale and technology.
However, even with more coal being supplied domestically, the Office of the Chief Economist expects total thermal coal imports into India to rise by two million tonnes in 2018.
In China, demand for thermal coal is also expected to grow through 2018, but by modest amounts as the country switches from “an industrial economy to a less-energy intensive services economy”.
Interestingly in Japan - the most developed Asian Economy - demand for thermal coal is increasing in line with the Government’s plan to gradually increase thermal coal use as it moves away from nuclear power in the wake of the Fukushima disaster.
So overall the amount of thermal coal leaving Australian shores in the next two years is not expected to change drastically. However, with countries like Indonesia and China both producing more coal, prices are expected to fall from their current five-year highs.That said the price outlook is considerably better than in 2015 when the Office of the Chief Economist was predicting prices around $US60 a tonne.