According to international coal market consultancy, Perret Associates, the international steam coal market has already rebalanced following the impact of the COVID pandemic.
In the latest edition of its Long Term Price Forecast 2021-2035 Steam Coal and Freight – The World After COVID, Perret Associates sees parallels with the 2008-09 world financial crisis, rather than the structural oversupply of 2012-15. In fact, the market might be starting a faster and stronger recovery than it did ten years ago.
The collapse in demand which took place during the 2020 spring proved short-lived, while the cut in production has been sustained well beyond the point at which demand started to recover.
The consultancy estimates a 2020 world supply shortage of 23mt, with seaborne steam coal exports falling by an unprecedented 120mt to 892mt. Indonesia and Colombia posted the most significant declines, with Indonesian exports falling by 65mt or 14.3 %, while Colombian shipments could fall by 26.3mt or 35.1%. On the other hand, Russia has emerged from the pandemic in a stronger position, as the only country to increase exports in 2020.
The world shortage is expected to carry over into 2021, at 19mt, and potentially last until 2025. This is down to a combination of the strong economic growth, which is expected to follow the pandemic, as well as, rather ironically, the growing unpopularity of coal.
Asian economies, in particular big coal-importers such as China, Vietnam and Taiwan have done a far better job of containing the pandemic than Western ones, especially Europe and the US. We expect this “K-shaped” recovery, which already started last year, to continue in 2021.
To meet the anticipated rise in power demand which will result from stronger economic activity, Perret Associates expects to see increasing utilisation of the significant spare capacity at existing coal power plants in most countries, due to the lack of available spare capacity from other sources.
This will translate into an immediate increase in coal consumption, especially in India-Pacific, where imports could reach 850mt in 2021, up 47mt from 2020 but also up from the previous record of 846mt reached in 2019, before the COVID crisis. Perret Associates expects an erosion in Chinese steam coal imports in 2020 before a strong recovery in 2021 at 236mt.
On the supply side, the difficulty miners have experienced finding investors in coal supply will persist and, if anything, intensify. This trend was already established before the COVID crisis and the pandemic has accelerated it.
Despite the recovery in international coal prices that has been taking place since September, most large producers seem to be in no rush to reopen the mines they closed down when demand collapsed earlier in 2020. In fact, some coal producers have been fighting for their very survival and are unwilling to make short term compromises and sell their coal at any price.
Consequently, Perret Associates only foresees a gradual rise in exports in the years ahead as this cycle could be quite different from the previous ones. Alongside the solid growth in demand, this could result in international supply/demand remaining tight for the foreseeable future, supporting coal prices in the process.
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