Page 4 - AsiaElec Week 25

AsiaElec COMMENTARY AsiaElec
Coal’s cold climate in Asia
Asia’s coal industry faces low prices and a supply glut, leaving it in a weak position to face global opposition to fossil fuels and the drive to reduce emissions, writes Richard Lockhart
ASIA
WHAT:
The Asian coal market is depressed, with weak prices and a hostile political and regulatory climate
WHY:
Demand for imports is stagnant in China and India, and new sources of future demand are struggling to emerge
WHAT NEXT:
Widespread opposition to coal funding will make major new coal projects dif cult to fund, leading to further worries about demand
ASIA’S coal industry is under pressure from all sides, as the global drive to reduce carbon emis- sions and to promote renewables contrasts with many governments’ desires to harness the availa- bility and convenience of coal to drive economic development.
Regional giants Japan and South Korea have all made calls to push forward renewables at home and abroad, yet India and developing countries such as Indonesia and Myanmar con- tinue to look coal to, at least in part, drive a new generation of power plants.
Meanwhile, Asia’s coal producers face a supply glut in the short term as large importers reduce purchases and access to nance and regu- latory approvals become hard to obtain for fossil fuel generation and industrial project.
Coal prices are at rock bottom as supply outpaces demand by 28 million tonnes. The Asian coal industry met in Bali this week to deal with what seems to be a depressed market, low prices, unfriendly regulators and a hostile global opinion.
Low prices
Current coal industry figures make for sorry reading. Benchmark prices at Newcastle fell to $70.78 per tonne last week, the lowest since Sep- tember 2016, are like to fall further. e index has averaged $89 so far in 2019, down 14% against the same period in 2018.
Slowing economic growth in China has already hit its coal imports. Chinese economic growth dropped to 6.6% in 2018, it’s lowest for 28 years, while Beijing predicts growth will slow further to 6.0-6.5% in 2019.
China’s coal imports could fall by as much as 5% in 2019 a er growth of 4.6% in 2018 as domestic coal output continues to hold up, despite some e orts by Beijing to push down coal output on environmental grounds.
Other forces are work are waning demand for coal in Europe in the face of cheap gas and a fall in coal demand in South Korea as nuclear power recovers a er the post-Fukushima shut down.
It is India that offers growth in Asia, with power generation growing fast and a 2% increase in coal- red generation in the rst half of 2019. India’s coal imports grew by 25% in 2018 to 141.7 million tonnes. In terms of supply, Indonesia’s coal exports rose by 16% year on year in April to 1.28m tonnes, according to Rodrigo Echeverri, head of research at Noble Resources.
On the other hand, there has been some mar- ket volatility, which has held back trading.
China’s trade con ict with Australia, which has seen lengthy border inspections and customs delays for coal shipments, means that Australian coking and thermal coal exports to China have been volatile.
Chinese customers gures showed that Chi- na’s imports of Australian coking coal in May plunged 49.3% to 1.38 million tonnes, as Chi- nese buyers delayed purchases because of fears that China could make it more di cult to import from Australia.
Also, Chinese restrictions on steel output are also holding back demand for coking coal.
Access to nance
As well as some market volatility low prices, dif- culties in raising nance for coal power plants means that coal demand is likely to fall further in future as the coal industry struggles to nd new buyers.
Two major Japanese banks, Mizuho Finan- cial Group and Mitsubishi UFJ Financial Group, both announced in May that they would tighten lending to coal- red power projects in a bid to combat climate change. Alongside this, a group of 100 global banks have declared they will divest from coal.
is accompanied major calls by UN secre- tary-general Antonio Guterres to end all new coal projects by 2020 in a bid to renew Paris Agreement-inspired e orts to reduce emissions
is translates into major di culties in rais- ing nance for future projects.
“Certainly, for the coal- red power sector it’s already clear there is no investment coming from European banks, U.S. banks, or Australian banks,” said Sacha Winzenried, a partner with PricewaterhouseCoopers in Jakarta, Reuters reported.
“ ere still seems to be some interest from Asian banks, China, Japan and Korea to a cer- tain extent, although I believe they are going to start to pull back as well,” she added.
As well as power plants, new mining projects will also feel that banks are unwilling to lend. is could lead to a slowdown in coal supply in the medium term.
Yet the problem is more nuanced. For mul- tilateral development banks (MDMs), coal is a complex choice. e Asian Development Bank has refused to halt funding coal projects,
Asia’s coal producers face a supply glut in the short term as large importers reduce purchases and access to nance and regulatory approvals become hard to obtain
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w w w . N E W S B A S E . c o m Week 25 25•June•2019