Coal producers facing drop in profitability

Russian coal suppliers will soon have to reckon with a drop in profitability due to coal market globalisation, considers Oilprice.com. Leading coal exporters are trying to redirect supplies from the declining European markets to Asia, but prices continue to fall due to a slowdown in demand in India, Japan and South Korea. According to Refinitiv market data provider, the difference in coal export prices between the Baltic region and Russia’s Far East exceeded $30 per tonne in May, while in November it fell below $15.

In the first eleven months of 2019, marine coal imports to Europe has declined by 13,7% to 133,8 million tonnes, while in the same period of 2018 it lost only 6,4%. The decline has affected all global suppliers almost equally: Indonesia, Australia, Russia, the USA and Colombia have lost from 5,4% to 10,3% of their export volumes. As a result, they have begun to redirect supplies to Asia raising exports by 6,2% in January-November 2019.

Meanwhile, demand in the four largest Asian markets (Japan, South Korea, India and China) has also begun to slow down. Japan and South Korea have cumulatively reduced marine coal imports by 1,8% in the eleven months of 2019. India increased imports by 12,2% and 17,8% in the first and second quarters respectively. However, the country reduced imports by 5,4% in the third quarter of 2019 and has lost another 8,5% in October and November because of a slowdown in the Indian manufacturing sector. In October and November, India’s PMI Manufacturing Index has been just slightly above the threshold of an industrial recession, according to IHS Markit. China’s PMI Manufacturing Index was below this threshold from May to October affecting the country’s coal consumption negatively. In the first eleven months of 2019, its growth has slowed to 14,3% compared to 40,3% in the same period of 2018. Besides, China is increasing imports of liquefied natural gas (LNG), which is more eco-friendly than coal.

LNG is also displacing coal in Europe, where the liquid fuel’s imports have increased by 75% from January to November. Coupled with the industrial recession in the Eurozone and the collapse of coal generation, this has caused a significant drop in prices. The price of coal in the Baltic region has fell by 37% (to $49,5 per tonne) in the first eleven months of the year. It was the first time since 2016 when coal prices dropped below $50. In the coming months, prices are likely to decrease further touching not only the Baltic region and the Russian Far East but also other major world hubs. Thus, Russian coal companies will probably face a further reduction in the Asian premium, due to which it would be possible to win back the fall in European prices, Oilprice.com forecasts.