Global demand for imported thermal coal is expected to continue to grow but at a slower rate of 2% per year until 2018, as China faces an oversupply of domestic coal and shifts to a more diverse mix of renewable energy sources to address air pollution concerns, analysts at global investment bank Goldman Sachs said in a report Friday.
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The study estimated demand growth globally at 15 million mt/year from 2013 to 2018 compared to 60 million mt/year on average from 2008-12.
The analysts were bearish on price outlook, arguing that the moderate increase in imported thermal coal demand will be "met with rising productivity, keeping prices near the level of marginal costs."
They pointed out that China's domestic coal production is benefiting from significant investment in the consolidation and mechanization of mines.
Chinese production is estimated to rise from 3.054 billion mt in 2013 to 3.176 billion mt this year. Total production is forecast to hit 3.634 billion mt by 2018.
Chinese imports are expected to fall from 150 million mt in 2013 to 146 million mt in 2014, and dwindle to 75 million mt by 2018.
Goldman Sachs said the forecast fall in Chinese coal imports is also attributed to the country's growing concern over air pollution, as environmental regulations are expected to lead to a gradual deceleration in coal-fired generation in favor of expanding new capacity for renewable energy sources, mainly hydro, wind and solar power.
The bank said it expects that, as China reins in its demand for imported coal, India and other Asian markets -- namely Japan and South Korea -- will emerge as "key drivers of demand over our forecast period to 2018."
The analysts said that India will be the biggest growth market, as its "power sector is highly dependent on coal, but its domestic coal sector has been unable to keep up with the demand -- unlike China."
Goldman sees Indian coal production increasing from 519 million mt in 2013 to 543 million mt in 2014, and reaching 669 million mt by 2018. The country's coal imports are expected to rise steadily from 145 million mt in 2013 to 160 million mt in 2014, and hit 230 million mt in 2018.
Meanwhile, Japan has been relying more on coal-fired power units after the tsunami in March 2011 resulted in a nuclear accident at Fukushima. South Korea is expected to increase its coal-fired power capacity from 25 GW in 2013 to 39 GW in 2018.