CANBERRA: Australia’s Department of Industry, Innovation and Science in its latest Resources and Energy Quarterly reported that thermal coal prices remained high, as strong demand added to supply worries The October 2017 to September 2018 Japanese contract price settled at US$94.75 a tonne FOB Newcastle, the same as the previous year. During the December quarter, Newcastle spot prices held at levels reached in late September 2017, at US$95-100 a tonne. Price strength derived from both firm restocking demand and supply concerns. The Newcastle FOB spot price is estimated to have averaged US$87 a tonne in 2017, one third above 2016. The premium of Australian thermal coal to Indonesian coal has stayed relatively wide, encouraging higher purchases of Indonesian coal (often to blend with Australian coal). Prices are expected to ease through 2018 and early 2019, as supply rebounds and demand moderates. The Newcastle FOB spot price is forecast to drop by 12 per cent to average US$77 a tonne in 2018, and by a further 6 per cent to USD70 a tonne in 2019. The JFY 2018 (April 2018 to March 2019) benchmark contract price is now projected to settle at US$79 a tonne, lower than the JFY 2017 price of US$84 a tonne. This represents an upward revision of US$5 a tonne from the September 2017 Resources and Energy Quarterly forecast. The contract price is forecast to be US$74 a tonne in 2019. Following an estimated gain of 1.3 per cent in 2017, world thermal coal trade in 2018 is forecast to increase by 1 per cent to 1.1 billion tonnes. A feature of world trade in 2017 has been the significant rise in imports outside of the major five Asian importing nations. For the past nine years, swings in imports by the major five Asian importers have closely dictated swings in total exports by the major six exporters (Indonesia, Australia, Russia, Colombia, South Africa and the US). However, in 2017 exports by the major six exporters were stronger than imports by the Asian five would have suggested, indicating stronger ‘rest of world’ demand. The strength in the ‘rest of the world’ could have contributed to unexpected price strength. Among the major five Asian importers, there have been signs of a tentative stabilisation in Indian import demand, and a major surge in South Korean imports. On the export side, the recovery in United States exports in late 2016 has held, and Indonesian exports have strengthened noticeably. Strong Asian import demand appears set to continue Thermal coal import demand has recently been driven by China, India, South Korea, and to a lesser extent Vietnam, Pakistan and the Philippines. Inventories in China and India have been low in seasonal terms, which has seen firm import demand from those nations as winter peaks. Chinese imports rose modestly in 2017, as safety checks impacted After Government-induced production cutbacks in the middle of 2016, Chinese thermal coal production in 2017 was adversely impacted by rolling mine safety inspections. The resultant low coal output helped raise imports, though buying has recently become much more sporadic, as it has in India, as prices hit levels that importers deem too high. Strong hydro power output in the latter half of 2017 allowed power generators to pare coal-fired output. Imports suffered, as customs conducted more stringent checks in ports in south China, delaying cargoes. The Chinese authorities remain committed to reducing losses by state owned coal miners. To that end, there remains a commitment at varying domestic output in order to try to keep prices at levels where Chinese power utilities have “acceptable” profit margins. The Chinese authorities remain committed to reducing losses by state owned coal miners. To that end, there remains a commitment at varying domestic output in order to try to keep prices at levels where Chinese power utilities have “acceptable” profit margins. The Chinese authorities appear intent on limiting thermal coal burn, particularly in the regions where air pollution is at its worst. However, more than half of China’s massive coal-fired fleet is less than 10 years old and can/will not be quickly replaced. Accordingly, over the forecast period (to end 2018-19) and beyond, the emphasis will be on importing high energy/low ash coal. This trend will favour Australian miners at the expense of Indonesian miners, though any major move in the price differential will see changes in Chinese blending, in order to optimise the price/energy trade off. Japanese imports are estimated to have risen modestly in 2017, as a steady economic recovery helped boost power demand. With the vast majority of the nuclear power industry remaining ‘grounded’, utilities continue to rely on coal to help fill the gap. Thermal coal imports are unlikely to show substantial growth in the next two years: Japan will continue to bring its nuclear power fleet back on line very slowly, and renewables are expected to provide a rising source of energy for Japan’s power needs. Indian imports declined in 2017 compared to 2016, as domestic output rose and inventories were run down after the end of the winter. Coal India has been successful in raising output modestly, though it looks unlikely to go close to meeting its 600 million tonne target for Indian financial year 2017-18. Production by Central Coalfields, a Coal India unit, was disrupted by unprecedented rains, and the closure of the Dhanbad-Chandrapura railway line (because of safety concerns) also disrupted supply. For 2017 as a whole, Indian imports from Indonesia are estimated to have been little changed from 2016, but there were significant falls in imports from South Africa and Australia. In the latter half of 2017, inventories at power plants were run down to reach their lowest level (in absolute terms) this decade, suggesting that inventories are extremely low relative to consumption. In the next year or so, imports will likely rebound modestly: with inventories very low, domestic coal output is unlikely to keep pace with rising power demand. A ban on petcoke in the National Capital egion in November 2017 will also act to boost thermal coal imports. The Indian Government remains intent on increasing the portion of renewable energy in the country’s power mix. However, it seems that the demand for power will rise at a faster pace than the rate at which renewable capacity can be built. The Indian government is left relying on increased domestic production (of low energy, high ash thermal coal) and or/higher imports.