* Coal prices have surged, topping oil, LNG, copper gains in
* Coal mining shares outperform in commodity sector
* Thermal coal markets to see supply shortfall in 2017
* Solid demand from China, SEAsia underpinning market
(Adds data on China coal imports, Adaro comment)
By Henning Gloystein
SINGAPORE, Feb 10 Many a swan song has been sung
for thermal coal markets as renewable power generation and a
push towards using more natural gas have gained traction.
Yet a coal price spike last year, driven by a Chinese change
in regulation that capped local mining operations, has shown how
easily markets can swing from oversupply to shortfall.
While many analysts and investors see the long-term outlook
for coal as bleak due to policies and technological advances
that favour cleaner natural gas and renewable in power
generation, its shorter-term prospects has seen a sharp reversal
"We are pleased to see the improvement in thermal coal
market dynamics on the back of supply cuts in China and
sustained demand," said Febriati Nadira, head of corporate
communication at Indonesian mining major PT Adaro Energy
China's coal imports jumped 64 percent in January from a
year earlier, to 24.91 million tonnes, one of the highest in
years, official customs data showed on Friday.
This year, strong demand growth in Asia's emerging markets
will create a supply shortfall for the first time in around half
a decade. Consumption could even soon rise past the 2014 peak,
according to Asia's largest commodity trading house, Noble Group
Despite coal's high levels of pollution, utilities and
governments in emerging economies, at least for now, largely
prefer coal-fired power over cleaner fuels in order to meet
soaring energy demand.
While gas and solar prices have fallen sharply, coal remains
one of the cheapest and most easily maintained sources of
More than 10 gigawatt (GW) of coal-fired power stations were
sanctioned last year in Southeast Asia, where most new demand
stems from, compared to just 4.6 GW of gas-fired projects,
according to energy consultancy Wood Mackenzie.
"New markets like the Philippines and Vietnam are starting
to seek our coal," the chief executive of Indonesian coal miner
PT Bukit Asam, Arviyan Arifin, told Reuters this week.
Rodrigo Echeverri, head of thermal coal analysis at Noble,
believes this year's global thermal coal market will be 13
million tonnes short of meeting 911 million tonnes of demand,
compared with a broadly balanced market in the last three years.
The tightness is a result of falling output after some
companies including U.S. giant Peabody Energy, filed
for bankruptcy, and other miners cut output at unprofitable
At the same time, Chinese imports grew by 43 million tonnes
as a result of restrictions on local production, while new
coal-fired power plants were commissioned in countries including
Vietnam, Malaysia, Philippines, Taiwan, Echeverri told a
conference in South Africa this month.
To meet the imminent shortfall, some miners have again begun
ramping up output.
Indonesia, the world's biggest thermal coal exporter, said
this month it is targeting production of 470 million tonnes in
2017, compared with its previous goal of 413 million tonnes and
up more than 8 percent on last year.
There are also signs that Australian thermal coal output is
picking up, with exports from Queensland hitting a record last
Even so, the shortfall in supply could reach 28 million
tonnes by 2020, meaning more new mines would need to be opened
by the mid-2020s to meet demand, Echeverri said.
Most commodities, including thermal coal,
crude oil, copper or liquefied natural gas
LNG-AS, have seen price rises since early 2016 as part of a
Australian thermal coal has performed best, rising 53
percent price versus 48 percent for oil, 25 percent for copper,
and just 8 percent for Asian LNG.
Because of this, companies focusing on seaborne coal
supplies fared better than other miners or oil and gas
"For pure coal players, the rise in prices from June 2016
... provided the catalyst for improved export sales margins
given that many producers were actively managing their
production costs," said Patrick Markey, managing director of
commodity advisory Sierra Vista Resources in Singapore.
This reversal of fortune of an industry that was deeply in
trouble just a year ago has been noted by investors.
Shares in thermal coal specialists like Australia's
Whitehaven Coal or Indonesia's Adaro Energy, are far
outperforming their peers in the oil and gas sector like
Australia's Woodside Petroleum, Royal Dutch Shell
Many oil and gas firms are grappling with cost overruns and
production delays at facilities such as Chevron's Wheatstone
condensate and LNG plant or Shell's Prelude floating LNG unit.
Longer term, the rise of cheap natural gas and increasingly
competitively priced renewable power generation is expected to
eat away at coal's power market share.
"We see clear winners for the next 25 years – natural gas
but especially wind and solar – replacing the champion of the
previous 25 years, coal," the latest outlook from International
Energy Agency (IEA) says.
In the meantime, producers are benefiting from Beijing's
ongoing drive to remove dirty and inefficient mines, which is
keeping seaborne coal prices in a sweet spot.
"Around $80 is a really, really good price for Australian
mines," said Peter O'Connor, resources analyst for brokerage
Shaw and Partners in Sydney.
(Additional reporting by Fergus Jensen in JAKARTA, Barbara
Lewis in CAPE TOWN, and James Regan in SYDNEY; Editing by