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China's demand for Australian thermal coal down 31% on year in fiscal 2015

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China's demand for Australian thermal coal down 31% on year in fiscal 2015

Perth — China's intake of thermal coal shipments from countries includingAustralia and Indonesia is forecast at 157 million mt for the fiscal yearended June 2015, representing a 31% decrease on traded volumes of 229 millionmt in the preceding fiscal year period, said the Australian government in areport Tuesday.

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"China's imports [of thermal coal] are forecast to decline by 31% to 157million [metric] tons in 2015, before recovering slightly to 160 million tonsin 2016," said Canberra's Office of the Chief Economist in a report onAustralia's resources and energy sectors.

"Over the remainder of 2015 and 2016, China's import growth will continueto be challenged by slowing economic growth, strong hydroelectric output andmeasures to support the domestic industry," said the report's section onthermal coal written by economist Kate Penney.

Chinese government attempts to improve air quality in the country'scities is also impacting demand for imported thermal coal, said the report.

Spot prices for Australian thermal coal are expected to remain underpressure for the rest of 2015 and into 2016 because industry response tooverproduction and overcapacity to date has been insufficient to reduce anoverhang of supply in the market, said the report.

"However, the supply response has been delayed because of limitations tochanging infrastructure supply services, the depreciation of the US dollarrelative to the currencies of other major producers, and lower energy prices,"said Penney. JAPAN, KOREA

Steady demand from other key markets including Japan, South Korea andTaiwan in the past fiscal year helped support seaborne-traded volumes ofAustralian thermal coal which increased by 3.2% to 201 million metric tons inthe 2014-15 fiscal year.

"Despite higher volumes, the value of these exports declined by anestimated 7% to A$15.6 billion ($12 billion) because of lower prices," saidthe report, and adding that Australia's thermal coal exports for the 2015-2016fiscal year are likely to be 202 million mt.

Japan's imports of Australian thermal coal have remained steady in theabsence of nuclear power generation and uncertainty over the restart of somenuclear power reactor units.

This uncertainty is likely to support Japan's thermal coal imports intakeat around 148 million mt in the 2015 fiscal year, and 145 million mt in the2016 fiscal year, said the report.

The Office of the Chief Economist is forecasting a price of about $62/mtFOB Newcastle basis 6,322 kcal/kg GAR for Australian thermal coal sold toJapanese power utilities under year-long term contracts with an April 1, 2016start date, an 8.5% decline on April 2015's benchmark price of $67.80/mt.

"In 2015-16, Australia's thermal coal production is forecast to increaseby 1.4% to 249 million mt," said the report.

South Korea's recent publication of its 7th Power Generation Master Plansuggests some shift away by Seoul from coal-fired power generation overemissions reduction concerns, but the introduction of an import tax for coalis reducing the competitiveness of low calorific value thermal coal, said thereport.

South Korea's imports of thermal coal are expected to rise by 2% between2015 and 2016 to 102 million mt, said the report.

--Mike Cooper, by Alisdair Bowles,