Coal accounted for 30 percent of global energy consumption last year, the highest share since 1969, according to the BP Statistical Review of World Energy 2012. Demand grew 5.4 percent in 2011, the fastest among fossil fuels.
Today, China coal stocks rebounded after significantly underperforming the broader market so far this year thanks to weak coal prices. China Coal rallied 4.6% to HK$6.63, but year-to-date the stock is still down 20.9% compared with a 7.1% gain in the Hang Seng Index. China Shenhua climbed 4.1% to HK$28.15 while Yanzhou Coal Mining rallied 5.8% to HK$12.68.
Demand for coal grew 3.3 percent last year in Europe while sales of natural gas fell 2.1 percent, the steepest drop since 2009, according to a BP Plc report. Germany's EON and RWE AG (RWE), the biggest utilities in Europe's largest power market, are considering shutting unprofitable gas-fired plants even as Chancellor Angela Merkel promotes gas to replace nuclear energy.
Europe's higher coal use defies its policies to penalize carbon emissions and is based on profit margins climbing to a two-and-a-half year high for coal-burning power stations. Cheaper coal was made possible partly by a 49 percent jump in first-quarter imports from the U.S., Energy Information Administration data show.
Companies in the USA are spending at least $530 million to expand coal-export capacity to meet overseas demand, capacity will grow 35 percent to 285 million tons annually by 2015.
Volume of ICE Coal Futures cleared on the ICE platform remained solidly above the 100Mt mark in June, amidst turbulent conditions in the physical coal market.
Reports of non-performance on July cargos in the Pacific caused prompt daily settlement prices to drop sharply in the first half of the month, with the Richards Bay contract losing $8.45/mt by 12th June - although all hubs saw July contract DSPs recover to their opening levels by month end.
A total of 107,957 lots (108 million tonnes of coal) were cleared during June - a 14% decline on the previous month but on par with the 2012 average monthly volume.
The contraction was driven mainly by a slowdown in the Rotterdam hub (and to a lesser extent at Richards Bay) following May's noteworthy performance - while volume in the Newcastle contract improved by 9%.
Open interest continued to increase, reaching a record 148,775 lots on 26th June.
Standard & Poor's said low production costs would help Asia Pacific's coal miners amid weakening financial performances on declining coal prices.
In a report on Wednesday, S&P said it expected cash flows and financial performance of six Asia-Pacific coal producers, including two in Indonesia, to soften in the next 12 months compared to bumper years in 2010 and 2011.
However, Xavier Jean and Vishal Kulkarni, analysts at S&P, said generally low costs in production activities would help these companies mitigate their cash flow management.
Low production costs and mines that are located close to the end markets are common characteristics of the six coal producers that we rate in the region, Jean said. Cost management in the context of softer coal prices will be key to the credit quality of Asia-Pacific coal miners over the next 12 months, in our view.
S&P rated Bumi Resources, the largest coal producer in Indonesia, with a BB rating and negative outlook, and its affiliate Berau Coal Energy, which has a BB- rating and positive outlook. BB is two levels below investment grade.
The four other mining companies mentioned in the report were Yanzhou Coal Mining, Vietnam National Coal and Mineral Industries, Hidili Industry International Development and Mongolian Mining.
A coal mining executive remains positive on the outlook of coal price this year.
Dileep Srivastava, a director at Bumi Resources, said in an e-mail on Monday that demand for coal usually picked up as winter approached in the fourth quarter and that the price for coal could rise to $100 per metric ton from the current average price of around $85 now.
We expect this year to be no different, he said.
Indonesia is planning to curb coal exports and was also considering a tax on shipments of the mineral.
Speaking at the Coaltrans conference in Bali, Energy and Minerals Minister Jero Wacik said on Monday that the country needed to conserve coal for domestic use.
The change will reduce the value of mines while adding to the profits of processing and trading.
American Estates Management formerly ARCHER ENTMT MDA CMNS (PINK:AEMC) to Add Coal Services Hub in Indonesia and will see income in 2012.
China may consume about 200 million tons of thermal coal less than last year as power production growth has dropped to 6 percent this year after increasing 14 percent last year.
The services Hub will provide machinery rental, Coal trading, Coal Storage, International Shipment, Coal Processing and Mining assistance.
The services hub will be in place in time to benefit from a change in Indonesia's Mining and Export Policies.
The initial investment has been externally funded and there will be no new issue of stock.
Coal mining in Indonesia is growing rapidly and the services sector is under developed, changes in Indonesia's legislation will force companies to comply and process Coal inside the country.
American Estates Management Company is a Real Estate Company focused on mineral deposits, agricultural land and Governement/Institutional Liaison services.
Indonesia's need for coal will increase strongly, so exports will need to be controlled, Wacik was quoted by Reuters as saying. He did not give further details.
The statement contributed to the decline of coal stock on the Indonesia Stock Exchange on Monday, with the mining sector falling almost 8 percent.
Indonesia, one the biggest thermal coal exporters in the world, recently announced a levy of 20 percent tax on exports of 65 unprocessed minerals, including copper and gold but leaving out coal.
But Dileep Srivastava, a director at Bumi Resources, one of Indonesia's largest coal miners, said it was too early to draw any conclusions from the statement.
Let's not speculate when market sentiment is already depressed, he said.
Supriatna Suhala, the executive director of the Indonesian Coal Mining Association (APBI), said that if the government wanted to impose an export tax on coal, it was unlikely to happen soon.
It is not happening this year, Supriatna said.
The APBI groups the country's coal miners and mining services firms, including Adaro Indonesia, Kaltim Prima Coal, Arutmin Indonesia, Berau Coal and Tambang Batubara Bukit Asam.
But Supriatna added that the government needed to streamline all the rulings affecting the country's coal industry before imposing any new ones.
There are a lot of technical problems that need to be smoothed out before the government can impose the tax, the APBI official said.
He pointed to what he called inconsistencies in contracts given to coal miners in terms of work, royalties and taxation. He added that the government had to everything it could to make a level playing field.
Companies are reportedly paying different amounts in royalties and taxes.
Supriatna claimed Bumi was among the highest taxed companies in the world, far more than counterparts in much of the metals or resource space.
Ray Gunara, president director of coal miner Harum Energy, said in a recent meeting in Jakarta that his company was already paying a 13.5 percent royalty.
Is [a 20 percent additional tax] feasible? he asked.
Companies will see if it will leave enough margin for them. Fuel cost is not declining, so we are not exactly seeing a way for us to reduce costs.
Shayne Heffernan oversees the management of funds for institutions and high net worth individuals.
Shayne Heffernan holds a Ph.D. in Economics and brings with him over 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over $500m and 1 that reached a peak market cap of $15b. He has managed and overseen start ups in Mining, Shipping, Technology and Financial Services.Read the Terms of Service