Coal market fundamentals are very favorable over the intermediate and long term.
Long-term Supercycle Projected for Coal
The World is in the early stages of a long-term supercycle for coal as China, India, Brazil and other emerging nations dramatically increase energy use, steel consumption grows globally, oil becomes increasingly scarce and expensive, and alternatives lack the cost and scale to effectively compete. Research firm Wood Mackenzie has forecasted global metallurgical coal demand to grow at a compounded annual growth rate of 5.9% between 2011 and 2020. The 2010 World Energy Outlook states that global energy demand is expected to expand by 53% from 2007 levels to 2030, an average rate of increase of 2.3% per year, with coal accounting for more than a third of the overall increase. As a recent indicator of the projected growth in coal usage, China's 2010 net coal imports totalled 147 million tonnes (“Mt”), a 41% increase over 2009's previous record level.
Global Demand Changing Atlantic Seaborne Coal Market
Asia's growing demand for steelmaking ingredients together with low seaborne freight costs have altered the structure of coal markets enough that Eastern USA (Appalachian) coals are now being shipped to China, standing as a testament to the improving profitability outlook for metallurgical coal producers globally.
Although Atlantic region metallurgical coals are now shipping to Asia, the US Energy Information Administration states that Europe continues to be the major destination for U.S. metallurgical coal, and in 2009 accounted for almost 53 % (37 Mt) of the regions total metallurgical coal exports. However, rail and port capacity, coupled with increasing government regulations, and high operating costs could limit future growth of Appalachian coal exports, increasing the market opportunities for other Atlantic Seaborne projects.
Demand for Steel Driving New Coal Project Development
This increased demand for metallurgical coal is being driven by an increase in steel consumption. According to the World Coal Institute, every ton of steel made in a traditional blast furnace requires 0.6 tonnes of metallurgical coal, and experts project that by 2015 global steel consumption will have risen from 1.3 billion tonnes to 1.8 billion tonnes, at an average annual growth rate of 6%. According to Wood Mackenzie, this fast-paced metallurgical coal demand growth will require 88 Mt of new production capacity from new projects between now and 2020 to meet this growth. The Australian research agency, ABARES, estimates that the three major growth markets for metallurgical coal over this period are expected to be Brazil, India and China, with imports over the next five years exceeding 10% per annum, cumulatively accounting for just under half of all the growth in demand for metallurgical coal.
