Demand for thermal coal to slide in 2009

The New Year will bring the lowest growth in demand for thermal coal imports (0.5%) on the international market in nearly two decades, Credit Suisse says.

In a Dec. 17 research note to clients the bank estimated there will be a 2% supply surplus for thermal coal in 2009.

“We reckon the market was in surplus in the first half of 2008, but with demand turning down in the last quarter, the market is moving into surplus.”  

What growth there will be is likely to come from Indonesia, where Credit Suisse expects thermal coal exports are likely to climb to 225 million tonnes in 2010. Australian thermal coal exports, meanwhile, are forecast to increase to 128 million tonnes in 2010 from 113 million tonnes in 2007.

Credit Suisse also believes that lower prices will reduce exports from the United States, while domestic power requirements will restrain volume growth of exports from South Africa. Lower coal prices will also mean Russian export volumes will decline by about 8 million tonnes in the period to 2010, the bank’s coal analysts argued.

The long-term outlook for thermal coal looks strong, however. 

In its base case, the U.S. Energy Information Administration, or EIA,   forecast in May that world electricity generation will nearly double from 2005 to 2030.

The EIA estimates that coal will increase its market share from 41% in 2005 to 46% in 2030.

“While natural gas is the fastest-growing energy source for electricity, coal continues to be the key fuel source (and by a wide margin),” Credit Suisse said.

“Of course, carbon taxes might alter this profile – but probably not dramatically given alternative coal technologies like clean-coal and carbon dioxide sequestration.”

Looking at the big picture, Credit Suisse pointed out that since 1980, thermal electricity generation in Asia has grown at a compound annual growth rate of 6.9% and that while alternative fuel sources are becoming more important, coal will remain dominant in electricity generation.

“The EIA forecasts that in the period to 2030 coal-fired power generation will grow at a compound annual growth rate of 3.1% versus total electricity growth at 2.6%,” the report stated. “So while spot prices may have fallen sharply to around US$80 per tonne, we think that coal prices have reached a floor. Thermal coal will prove to be defensive.”