THERMAL COAL
The Big Five
July 2017
Almost 25% of thermal coal traded on the international market in 2017 will be sourced from the five largest-volume producers. These companies, led by Glencore, have operations in an array of supply regions, targeting a variety of products and demand markets. While Russian miner SUEK possesses a cost advantage over its competitors, it is the cornering of key demand markets based on product specifications and geographical advantages that has allowed these companies to flourish.

The Main Players

  • AME forecasts almost 25% of the thermal coal traded on the international market in 2017 will be sourced from the top five producers by volume, accounting for over 240Mt of sales.

 

 

  • Swiss-based commodities and mining giant Glencore is set to continue its dominance over the export thermal coal market in 2017, a mantle it has held since its takeover of Xstrata in 2013. The company is anticipated to produce over 100Mt of export thermal coal for the year, accounting for over 10% of the global export market. Glencore owns operations in several supply regions, with around 58% of the company’s 2017 thermal coal production forecast to be produced in Australia, and 30% produced in Colombia. The remaining 12% is expected to be sourced from South Africa.
  • Indonesian miners Adaro Energy and Bumi Resources also make the top five, accounting for 7% of global exports with approximately 42Mt and 28Mt, respectively. Both companies own large-scale operations in South and East Kalimantan, extracting low-ash coal from thick seams by truck and shovel methods.
  • Russian miner SUEK is the dark horse of the group, consistently producing over 30Mtpa of thermal coal for the international market over the past five years, steadily ramping up productivity at several operations throughout the country.
  • Like Glencore, Anglo American holds thermal coal assets in a variety of supply regions, and is expected to produce around 32Mt for the export market in 2017. In contrast to Glencore, however, AME expects over 60% of Anglo’s thermal coal exports to be produced in South Africa, with 34% sourced from Colombia and only 6% produced in Australia.

 

Gaining the Advantage

  • With the top five companies holding operations in a range of countries, it is no surprise there is a wide spectrum of product qualities, specifications and costs.
  • Glencore’s thermal coal exports are dominated by premium-quality, 6,300kcal/kg benchmark products, sourced from all three of its supply regions. High ash, lower energy by-products are also produced at the majority of the company’s Australian and South African operations, with Glencore’s South African coal also possessing higher sulphur contents.
  • Adaro Energy and Bumi Resources predominately export low energy, low ash sub-bituminous coal with a calorific value in the range of 4,000–5,250kcal/kg NAR. Ash content is generally in the 3–4% range, making the coal ideal for blending.
  • SUEK exports a wide variety of products ranging from sub-bituminous to premium thermal coal, with the majority of its premium product comparable to the Newcastle benchmark. Sulphur content is generally lower than that of thermal coals exported from Australia, but ash and volatile matter content is commonly higher.
  • Anglo American’s export product split is similar to that of Glencore’s, however, with a heavier weighting towards the higher ash, sulphur and lower calorific value of South African coals.

 

 

  • When analysing costs on a calorific-adjusted basis, the top five companies are relatively spread throughout the cost curve. SUEK is the only company that places in the first quartile in 2017, significantly benefiting from the weak Russian rouble, low wage costs and generous royalty rates. Bumi Resources, Anglo American and Glencore are anticipated to produce at a similar quality-adjusted FOB cash cost in 2017, with Glencore slightly higher, due to higher labour costs at its Australia operations. Adaro Energy has experienced above average strip ratios at its flagship Adaro mine over recent years, causing the company to move up the cost curve.
  • On the 2017 FOB cost curve not adjusted for calorific value, SUEK, Adaro Energy and Bumi Resources all place within the first quartile, with Anglo American and Glencore remaining in the second quartile.

 

Cornering Key Markets

  • The top five companies have flourished on the back of targeting specific and separate markets, each operating largely unhindered by the other. These key markets are determined by the demand for the specifications of the product extracted, price and geographical location.
  • Glencore’s premium thermal product sourced from Australia is mainly sold into Japan, Korea and Taiwan (JKT), with power stations in the region commonly designed to take Newcastle benchmark-grade thermal coal. The company’s high-ash Australian product is predominantly sold to China, whereas most South African products are sold into India. Glencore’s Colombian thermal coal exports are targeted at Europe and Turkey.
  • Adaro Energy and Bumi Resources’ product coal is mainly sold into India, where power utilities and industrials are more price-conscious compared to their North Asian counterparts. Increasingly, however, China and Korea have become more prominent buyers of Indonesian coal, with power utilities aiming to decrease the ash content of their overall blend.

 

 

  • SUEK is uniquely positioned compared to its rivals, with the majority of its exporting mines located in Russia’s Kemerovo region, roughly equidistant to both European and Asian markets. In recent years, SUEK has been increasing sales volumes into the Asia-Pacific market, accounting for 60% of all exports in 2016 compared to 54% in 2011. SUEK’s primary European/Atlantic markets in 2017 are expected to be the Netherlands, Germany and Morocco, with Korea, Japan and China set to be the company’s dominant Asian customers.
  • Anglo American’s target markets are similar to those of Glencore’s, with a stronger focus on the Indian market for its South African operations. Anglo is the dominant producer of export thermal coal in South Africa, anticipated to account for around 30% of all internationally traded volumes in 2017.