Peabody Energy Chairman and CEO Greg Boyce said the global supercycle for coal was “alive and well” with strong market trends related to rising electricity generation and steel demand in China and India, along with constrained global coal supplies. Speaking at the Howard Weil 2012 Energy Conference in New Orleans, La., USA, Boyce said, “Coal has been the fastest-growing major global fuel and is expected to become the world’s largest energy source. The seaborne coal market has exceeded 1 billion metric tons for the first time, and the cost of coal is just a fraction of global oil and liquefied natural gas (LNG).
“While concerns about the global economy make headlines, recent data support the coal supercycle thesis for both met and thermal coal,” said Boyce. “Chinese steel production is coming off of trough levels set in November 2011. China just announced 20 million mt of coal imports in February, and the last four months of coal imports are up more than 40% from prior-year levels. India’s thermal coal imports rose 35% in 2011, and last week the country moved to eliminate its coal import tariff.”
Boyce’s market observations covered a broad range of supply and demand fundamentals. “China and India are leading the global buildout of coal-fueled generation. Over the next five years, we see generation growing 370 gigawatts (GW)…and that requires more than 1.2 billion mt of additional coal. To put this in perspective, this is equivalent to one new 500 megawatt power plant every three days…through 2016.
“We see growth in metallurgical coal markets to serve steel production that is expected to grow by some 40% this decade, which would require approximately 400 million mt of additional metallurgical coal. And if India, Brazil and China reached a traditional level of maturity in steel intensity of more developed countries, global metallurgical coal use would more than double and add 1.2 billion mt of annual consumption. We believe there will be continued structural shortages for metallurgical coal particularly at the high end of the quality scale…for both coking coals and PCI products,” said Boyce.
“China’s economic growth has exceeded targets every single year this century. In fact, while targets have been between 7% and 8%, the actual performance has averaged nearly 3 percentage points higher, with actual growth of up to 14% per year. And China is now a global economic power with a much larger base than last decade, so even the targeted 7.5% GDP increase in 2012 would be greater economic growth than a 13% GDP increase in 2006.
“China’s GDP largely tracks its generation growth, which in turn translates into higher coal use. Coal use consistently exceeds targets. During the 10th five-year plan, 1.1 billion mt of coal use was targeted for the last year while 2.3 billion mt were actually consumed. During the 11th five-year plan, 2.5 billion mt of coal use was targeted for the last year and 3.5 billion mt were consumed. If you assume 8.5% economic growth, China’s 2015 coal consumption would reach 5 billion mt,” said Boyce.
“Coal-fueled power rose 14% last year, driving a similar increase in net coal imports. In 2012, domestic coal production is targeted to increase just 3.7% while generation growth is targeted at double that rate. We believe China’s net coal imports could exceed 300 million mt per year by 2016.
“India was the fastest-growing coal importer in 2011. Coal-fueled generation rose 9% in 2011 and thermal coal imports rose 35%, evidencing the growing need for seaborne coal. Nearly 40 GW of coal-fueled generation is expected to start up in the next two years, requiring 140 million mt of added coal, much of which could come from imports. And India has a trillion dollars planned in infrastructure needs in its five-year plan, requiring steel and power to put into place,” said Boyce.
“We see major coal supply constraints around the world. Domestic production in China is experiencing higher costs, declining metallurgical coal qualities, and a long haul for thermal coal as the supply base moves to the north and west over time. India faces major production issues and rapidly growing coal imports. Ownership and domestic market obligations affect both Indonesia and South African coal exports. Infrastructure challenges impact many of the exporting nations, whether due to remote mining locations such as Mongolia…or rail and port access that isn’t keeping up with demand in places such as Australia, Canada and the U.S. West Coast.”