There are several reasons for this which we consider in detail below:
Slowing power demand as the economy transitions to services/consumer,
Slower coal demand reflecting substitution away from coal and toward efficiency, natural gas and other energy forms,
Relatively stronger domestic coal production compared to imports,
A shift in China’s thermal coal fired power production inland to central and western provinces in part facilitated by the national grid build out,
A shift away from direct coal consumption, particularly in heavily populated coastal provinces, as reticulated natural gas and national grid build out displaces heavily polluting direct coal use.
We conclude that China’s net thermal coal imports are likely to continue contracting toward arbitrage levels at best, and potentially a return to net exports (as per early 2000’s) at worst. This would present a huge change for the seaborne market.
Add another 60 million tonnes of uneconomic supply is self-evidently absurd. Michael West has it right, I think:
Adani is not going to happen; the construction, that is, of the leviathan Carmichael mine, the world’s largest thermal coal mine in the hinterland of the Great Barrier Reef.
Much is the wailing and gnashing of teeth at the move by the Queensland government to approve the project but this approval is entirely political.
It is all about the appearance of commitment to jobs, jobs that will never occur unless the coal price doubles, and it is about the government not getting bashed up by the opposition for being anti-jobs and abandoning its election commitments.
Even Adani is coy. No sooner had the Indian conglomerate been granted approval than it deferred the project for another year. Buried in the detail of its press release was this: “opportunity for final investment decision and construction in 2017”.
Let’s hope so because prices are still falling and will keep doing so, from Fairfax:
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Australian thermal coal miners are set to take another price hit, with Japanese power utilities close to agreeing to a contract price that will be more than 10 per cent below last year’s contract price.
The annual round of price negotiations with the Japanese buyers is close to completion, and Marian Hookham from coal data provider IHS said the Japanese customers were increasingly reluctant to pay a premium.
Japanese utilities have traditionally purchased more than half of Australian thermal coal, and the annual contract price has traditionally been set higher than the market or “spot” price.
But with coal markets oversupplied and prices in the doldrums, the premium paid for security of supply is increasingly being questioned.
“There has been a recognition in Japan that the power utilities are paying a premium to Australian suppliers and they’ve basically starting asking why are we doing it,” Ms Hookham said.
“We understand that Tohoku is looking at around a $US57 per tonne number, and Glencore is pushing for around a $US60 per tonne number,” she said.
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
