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P.TEJEESH CHANDRA (1226213139)

INTERNATIONAL COAL TRADE

SUMMARY Coal is a global industry, with coal mined commercially in over 50 countries and used in over 70. Coal is readily available from a wide variety of sources in a well-supplied worldwide market. A large number of suppliers are active in the international coal market, ensuring a competitive and efficient market. Coal has many important uses worldwide. The most significant uses of coal are in electricity generation, steel production, cement manufacturing and as a liquid fuel. Around 6.6 billion tonnes of hard coal were used worldwide last year and 1 billion tones of brown coal. Since 2000, global coal consumption has grown faster than any other fuel. The five largest coal users - China, USA, India, Russia and Japan - account for 76% of total global coal use. Different types of coal have different uses. Steam coal - also known as thermal coal - is mainly used in power generation. Coking coal - also known as metallurgical coal - is mainly used in steel production. The biggest market for coal is Asia, which currently accounts for over 67% of global coal consumption. Many countries do not have natural energy resources sufficient to cover their energy needs, and therefore need to import energy to help meet their requirements.

INTRODUCTION Coal is traded all over the world, with coal shipped huge distances by sea to reach markets. Over the last twenty years, seaborne trade in steam coal has increased on average by about 8% each year, while seaborne coking coal trade has increased by 2% a year. Overall international trade in coal reached 718 Mt in 2003; while this is a significant amount of coal it still only accounts for about 18% of total coal consumed. Transportation costs account for a large share of the total delivered price of coal, therefore international trade in steam coal is effectively divided into two regional markets the Atlantic and the Pacific. The Atlantic market is made up of importing countries in Western Europe, notably the UK, Germany and Spain. The Pacific market consists of developing and OECD Asian importers, notably Japan, Korea and Chinese Taipei. The Pacific market currently accounts for about 60% of world steam coal trade. Markets tend to overlap when coal prices are high and supplies plentiful. South Africa is a natural point of convergence between the two markets. Australia is the worlds largest coal exporter; exporting over 207 Mt of hard coal in 2003, out of its total production of 274 Mt. Coal is one of Australias most valuable export commodities. Although

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almost three-quarters of Australias exports go to the Asian market, Australian coals are used all over the world, including Europe, the Americas and Africa. International coking coal trade is limited. Australia is also the largest supplier of coking coal, accounting for 51% of world exports. The USA and Canada are significant exporters and China is emerging as an important supplier. Coking coal is more expensive than steam coal, which means that Australia is able to afford the high freight rates involved in exporting coking coal worldwide. COAL TRADE International coal trade has increased continuously over the past three decades driven by a sustained growth in steam coal trade . Total trade is estimated at 1,276 million tons in 2012, of which seaborne trade accounts for 1,166 million tons and cross-border trade between neighboring countries for 110 million tons Global coal production is expected to reach 7 billion tonnes in 2030 with China accounting for around half the increase over this period. Steam coal production is projected to have reached around 5.2 billion tonnes; coking coal 624 million tonnes; and brown coal 1.2 billion tonnes Coal currently fuels 39% of the worlds electricity and this proportion is expected to remain at similar levels over the next 30 years. Consumption of steam coal is projected to grow by 1.5% per year over the period 2002- 2030. Lignite, also used in power generation, will grow by 1% per year. Demand for coking coal in iron and steel production is set to increase by 0.9% per year over this period. The biggest market for coal is Asia, which currently accounts for 54% of global coal consumption although China is responsible for a significant proportion of this. Many countries do not have natural energy resources sufficient to cover their energy needs, and therefore need to import energy to help meet their requirements. Japan, Chinese Taipei and Korea, import significant quantities of steam coal for electricity generation and coking coal for steel production.

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It is not just a lack of indigenous coal supplies that prompts countries to import coal but also the importance of obtaining specific types of coal. Major coal producers such as China, the USA and India, also import quantities of coal for quality and logistical reasons. Growth in both the steam and coking coal markets will be strongest in developing Asian countries, where demand for electricity and the need for steel in construction, car production, and demands for household appliances will increase as incomes rise. IMPORTERS OF COAL Chinas domestic coal output has more than doubled while its coal imports have increased by a factor of 60the countrys dependence on other nations coal exports is growing. In 2009, the global coal market witnessed a dramatic realignment as China burst onto the scene, importing coal from as far away as Colombia and the United States. With 182 million tons (Mt) of coal sourced from overseas suppliers in 2011, It has overtaken Japan as the worlds top coal importer. Moreover, as the worlds top coal consumer, Chinas imports could rise significantly again by 2015. Chinas move to import increasing amounts of coal to add to its vast stores of domestic reserves will influence the global economy, geopolitics, and the environment. Effective policy tools and governance structures will be needed for China to manage its coal use and for the international community to deal with repercussions from the burgeoning coal import markets. Once a largely isolated coal market, China now plays an increasingly important role in shaping global trade flows and increasing price fluctuations in world coal markets. Understanding the key forces driving Chinese coal imports is necessary for assessing the global implications of Chinas international coal trade. Japan was the largest global coal importer until 2011, ahead of China. In 2011, the country imported 175 million tons, a decrease by 9 million tons compared with 2010, mainly due the impact of the tragic Fukushima accident. Japanese imports are dominated by steam coal imports (107 million tons in 2011). Today coal accounts for 25% of electricity generation. Coking coal imports accounted for 39% of total imports in 2011 (68 million tons). Crude steel production amounted to 108 million tons in 2011, a slight decrease compared with 2010, and was stable except in 2009 at around 110-120 million tons a year over the past decade. Though India produces coal, but the coal produced is not sufficient to meet the requirements of the country. So it depends on the imports of the coal. This was again illustrated by the large-scale blackout the country experienced in July 2012. India has an ambitious electrification program and in 2006 launched an initiative for the construction of 14 coal-based UMPPs (Ultra Mega Power Projects),

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each with a capacity of 4,000 MW. The new 12th Five-Year Plan has confirmed this program, with the aim of adding 64 GW of thermal capacity in the next five years, almost entirely powered by coal (63 GW). The 12th Five-Year Plan foresees an increase of coal production from 550 million tons in 20112012 to 640 to 795 million tons in 2016-2017. India has increasingly turned to the international market to fill the widening gap between domestic production and growing demand. Imports surged from 54 million tons in 2007 to 116 million tons in 2011 and an estimated 134 million tons in 2012.

EXPORTERS OF COAL

Australia is a major player on the international coal market. Coal is of strategic importance for Australia. It is the second largest commodity export after iron ore, with earnings of around Australian dollar (AUD) 45 billion in 2011. Australian hard coal reserves are estimated at 43,800 million tons (BGR, 2012). The country produced 358 million tons in 2011, of which 211 million tons of steam coal and 147 million tons of coking coal The future expansion of Australian coal exports is strongly linked with gains in productivity and a recovery in international coal prices. Australia has been losing the edge and there by decline in the exports. Indonesia produces a large quantity of sub-bituminous coal, as well as off-spec coal with a calorific value under 4,100 kcal/kg, lignite and PCI. Reserves and production are spread within two States: Kalimantan and Sumatra. Indonesia produced coal at a very low rates as the easy coal mines depleted they have to go for distant coal mines there by increasing the price of production and productivity. As the domestic use of coal is increasing dynamically Indonesia has a many

challenges to face in the near future. The government needs huge funds to upgrade its production facility and infrastructure. USA has been using various forms of energy like nuclear, hydro power, renewable, natural gas, and coal. Domestic coal use has been decreased because of the shale gas revolution and lower gas price. They achieved a record level of exports in 2011: 97 million tons, up 31% compared to 2010. In the year 2012 coal exports increased to a new record, the price on the international market was much lower squeezing the margins of coal producers already in a difficult situation on the domestic market.

PRICING OF COAL INTERNATIONALLY

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Over the next 30 years, it is estimated that global energy demand will increase by almost 60%. Two thirds of the increase will come from developing countries by 2030 they will account for almost half of total energy demand. Global physical coal prices will face downward pressure in the next year as Chinese miners reduce prices to compete with outside producers such as Australia. Coal prices have already dropped around 20 percent since peaking in January, it is being predicted that price could fall further as Chinese producers add to an oversupplied global market. In the U.S.A the direct relationship has increased as a result of the relative weakness of the U.S. dollar, the widespread use of U.S. dollar-based indices to price coal, and a supply of U.S. coal available for export. The relationship between U.S. coal and international coal pricing is likely to increase further with growth in global coal trade driven by increased demand, particularly from Asia, an increased reliance on coal exports to maintain/expand production levels, and the growth in export infrastructure, particularly into Pacific markets. The shale gas revolution is responsible for the fall in the imports of coal in USA. The shale gas revolution is the main setback for coal imports in USA, thereby they are exports have been rising dramatically. In 2012 natural gas power will reduce by 11% to 1,109 TWh in 2013 from 1246 TWh in 2012. Whereas coal generation is projected to return to 1635 TWh in 2013 surpassing 2012 yet it will not recover 1733 TWh recorded in 2011. The price of coal was historically stable compared to the major fluctuations observed in oil and natural gas prices, volatility has increased in recent years due to market dynamics. A number of factors have increased the relationship between U.S. and international coal prices; each factor is discussed below. With global coal pricing U.S. dollar-denominated and the U.S. representing a small share of total exports, the relative strength of the U.S. dollar has been very relevant to the establishment of global coal price levels. The relationship of most significance has been between the U.S. dollar and the Australian dollar as Australia is the largest exporter of metallurgical coal and until 2011 the largest exporter (in tonnes) overall. Metallurgical coal is a subset of the global coal market, currently accounting for about 25% of global coal trade. Two factors distinguish the metallurgical coal trade from the steam coal trade: first, and most significant, the fewer number of sources of metallurgical coal; second, and not unrelated, the higher value of this product.

CONCLUSION: The countries that are considered as developing countries will be the main key players. china and USA will dominate the world markets by the policy changes which influences the importers. China has recently issued liberalization of prices of domestic coal sold to power utilities that the government controlled until now. Under the new policy, coal miners and power companies can determine their own

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steam coal prices through bi-lateral negotiations. The country has also announced the abolition of the 40% tax that applied to coke exports. Both changes will affect the global coal market, although it is difficult to recognize the final impact. The price liberalization has not yet led to a rise in domestic coal prices, given the current overcapacity in the Chinese market, and the impact is not yet seen on the competitiveness of imported coal relative to domestic coal. The developed and developing countries may change the national policies but the impact will be on the world that depends on the coal imports and exports. From the importer side china, India and Japan will be the key reason for the future of coal trade and from the supplier side Australia and Indonesia will be the determinant factors for exports. The USA will be the wild card entry for the world equation.

REFERENCES
1. Emily Medine , September 19, 2013, Relationship between U.S. and International Coal Pricing, Energy Ventures Analysis, Inc

http://www.pennenergy.com/articles/pennenergy/2013/09/coal-news-us-and-international-coal-pricing.html

2. http://www.euracoal.be/pages/layout1sp.php?idpage=909

3. Dale Hudson, Sep 11, 2013,reuters http://in.reuters.com/article/2013/09/11/energy-coal-idINL5N0H71AG20130911

4. ARVIND JAYARAM,

October 26, 2013, the business line.

http://www.thehindubusinessline.com/features/investment-world/market-watch/coal-prices-to-remain-underpressure/article5276101.ece

5. Global Coal Trade From Tightness to Oversupply by Sylvie Cornot-Gandolphe year 2013.