Hard times ahead for global coal trade

The VM Group says coal trade is negatively affected by the credit crunch in all parts of the world.

JOHANNESBURG - 

The global credit crunch is stifling physical coal trade around the world, slicing volumes and prices, with even large utilities struggling to raise short-term finance to operate normally.

The VM Group said in its latest Fortis Energy Monthly that European power utilities reported in early October that they had stopped trading coal swaps and physical cargoes with some banks.

Only a handful of coal traders with the larger utilities, such as EDF Trading, RWE and E.ON and established traders such as Glencore and Vitol would withstand the storm, while many smaller trading operations have been finding it hard to do business and now face an uncertain future.

Also boding ill for global coal trade was the European parliament's October decision to effectively ban all new coal-fired power stations being built unless they incorporate carbon capture and storage (CCS) technology.

The vote sparked criticism from heavy coal users such as the United Kingdom, Germany and Poland who said it would cause an energy gap as CCS was not available yet. Negotiations between Brussels and member states were underway and a full parliamentary vote could be held in December.

The report said that coal output slowed in China in September, after power consumption weakened for the fifth month in a row. The State Electricity Regulatory Commission also reported that coal prices were declining at a fast pace, as the supply-demand situation was easing.

Chinese exports have continued to decline since the middle of the year, partly due to export quota limits. However, mounting domestic stocks in the face of lower demand could see a new emphasis on "overseas sales".

OUTLOOK

The VM Group said the Australian Bureau of Agricultural and Resource Economics (ABARE) expected world trade in thermal coal to rise over the next twelve months, despite the global economic outlook.

ABARE calculated that trade would have risen to 721mt this year and expected it to climb to 744-749mt in 2009. It forecast that the strongest import demand would come from Japan and India where it expected a rise in imports of more than 10%.

Indonesia was likely to emerge as the largest exporter of thermal coal next year, selling 217mt overseas against 190.7mt this year.

But the VM Group said this picture of continuing growth was likely to be overshadowed by the "grim outlook" for economic growth within many major coal-consuming countries.

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