By Rohan Somwanshi

Shipments from seven major coal exporting countries slowed in February from January levels, except Colombia, an analysis of data collected from several sources by SNL Energy showed.

In the first two months of 2015, Australia, Indonesia, Russia, the U.S., Colombia, South Africa and Canada exported 188.7 million tonnes of coal, amounting to 15.9% of the total export estimates projected for these countries for the full year.

In February, Colombia's coal exports grew 6.9% to 6.2 million tonnes from January levels. Meanwhile, the six other major coal exporting countries tracked by SNL Energy saw declines in their monthly shipments, including Australia and Indonesia.

Australia's Office of the Chief Economist, or OCE, in its March quarterly report said Colombia's coal exports are expected to grow at an average annual rate of 8% to 122 million tonnes over the "medium term," underpinned by the development of new projects and infrastructure in the country.

Colombia could boost its coal shipments to the Asian-Pacific market after a decline in demand in its traditional markets of the U.S. and Europe. The OCE estimates that the expansion of the Panama Canal could reduce the shipping time by up to 15 days and reduce the cost of shipping to Asia.

Analysts and industry experts believe oversupply in thermal coal export markets could still persist, but metallurgical coal markets are expected to tighten beginning in 2016, restoring some balance due to steel production in China and India and the closure of global high-cost production capacity.

"Despite a steady trickle of closures, we have not yet seen shuts in large enough magnitude to rebalance the market," UBS Securities LLC said in a research report.

An earlier SNL Energy report said coal miners worldwide announced roughly 113 million tonnes of thermal production cuts in 2014, with the majority of those coming from China, the U.S. and Australia, but supply rationalization has been "fairly limited" and not enough to offset overall coal output growth seen in the last year. Those cutbacks came from companies including Shenhua Group Corp. Ltd., China Coal Group, Cloud Peak Energy Inc., Peabody Energy Corp. and Arch Coal Inc.

The OCE said a strong U.S. currency and a rapid decline in oil prices are providing some relief to struggling coal producers, further delaying the decision to close capacity. The delayed closure of unprofitable capacity may extend the "supply overhang" in thermal coal markets into 2016 and 2017, putting downward pressure on prices.

"Lower prices will reduce the incentive to invest in new capacity and eventually force less competitive operations to close," the OCE said.

Matthew Boyle, principal consultant at CRU Group, told SNL Energy that given the current low market price environment, there is potential for consolidation within the industry, or miners might look to divest assets. "Coal producers have made significant cost reductions in the past couple of years, and it is becoming more difficult to achieve any additional production cost reductions," Boyle said.

Australia, Indonesia shipments on par

Coal exports from Australia and Indonesia were neck and neck in February, but below their January shipment volumes. Each of the countries shipped 29.5 million tonnes of coal in February, according to data collected from various ports in Australia and Bank of Indonesia.

Australia has managed to increase its market share in some key export markets, including China, despite a challenging operating environment in 2014, the OCE said.

Australia recently opened the Wiggins Island coal export terminal, or WICET, adding a further 27 million tonnes per year to the country's export capacity, according to research firm Morgans Financial Ltd. The terminal shipped its first shipment, loaded with 74,750 tonnes of coal, on April 28, various news reports said. The project was first announced in 2008 followed by capacity commitments. The vessel left the Gladstone harbor in Queensland, and is heading to a power plant in Hong Kong, according to Gladstone Observer.

Roger Leaning, director of research at Morgans Financial, told SNL Energy that with consensus views suggesting that coal will be an important contributor in meeting the growing energy demand of other developing economies, Australian ports WICET, Gladstone, Dalrymple, and Abbott Point may become increasingly important in the mid- to long term.

Australian producers are still able to make enough of a margin despite benchmark thermal coal prices settling at $67.80/tonne, but the lower pricing environment could be changing contracting negotiations and export product mix, some say.

"You might find some Hunter Valley producers might be incentivized at the $67-68/[tonne] FOB Newcastle level to produce 6,000 kcal/kg specification coal, rather than produce lower quality 5,500 kcal/kg coal," Boyle said. "Also, producers would probably want to sell more coal into annual contracts at these levels rather than the spot market, given the dynamics in the current market."

In 2016, the met coal market balance is expected to tighten as growth in steel production in China and India increases and the prolonged period of oversupply comes to an end, the OCE estimates.

Australia, the world's largest met coal exporting country, saw its share of China's total imports increased after volume reductions from the U.S. and Canadian suppliers, according to the OCE. A free trade agreement between China and Australia is one of the factors that is expected to help Australia maintain or increase the China market share over the medium term.

During the next five years, Mozambique could emerge as a large met coal exporter, with Vale SA and Mitsui & Co. Ltd. planning to ramp up output to 22 million tonnes per year by 2016 from current levels of 4 million tonnes per year at Moatize, the OCE says.

U.S. met coal exports to China, Japan, Korea and India are expected to continue to fall in 2015, as they did in 2014, UBS said. However, coal shipments to Europe may remain "relatively robust" due to estimated pickup in European steel production.

High quality hard coking coal contract prices may decline by 8% to average $116/tonne in 2015, according to the OCE.

Mixed trade figures in Asia

UBS said China's thermal coal imports are expected to decline almost 80 million tonnes on an annualized basis following peak imports in 2013, as the country takes steps to reduce coastal demand, encourage domestic suppliers and open another 400 million to 500 million tonnes per year of internal coal rail capacity over coming years, among other measures. "China's potential to withdraw from this [thermal coal] trade threatens to stop thermal coal trade in its tracks for some years," UBS said.

The research firm expects China's net coal imports to decline to 179 million tonnes in 2015, from more than 200 million tonnes in 2014.

In February, China imported 9.8 million tonnes of coal, a 34.7% drop from January levels, according to China Coal Resource.

"China, with a total thermal coal production of 2.8 [billion tonnes] in 2014, does not have to rely on seaborne imports to meet its demand. We also expect Chinese domestic production costs will increase in 2015 and the flow of Chinese domestic coastal supply, from mines in the North to the major demand markets in the South, will improve," Boyle said.

Besides China, coal shipments to Japan also declined in February from January levels, data from Japan Customs shows. Japan imported 15.1 million tonnes of coal in February, down 14.7% from January volumes.

However, coal imports in India and South Korea continued to grow during February. India's coal imports reached 17.9 million tonnes in February, up 13.3% from the previous month, according to mjunction. South Korean imports totaled 10.3 million tonnes.

Coal exports from Canada declined slightly to 2.5 million tonnes from the previous month, data from Statistics Canada showed. Russian export shipments fell 7.6% to 10.9 million tonnes in February from January, according to Port News.

South Africa's coal exports in February totaled 6 million tonnes, of that 2.8 million tonnes were shipped to India, according to a source familiar with the market. Other large volume buyers of South African coal were the United Arab Emirates, Turkey, Israel, Morocco and Egypt, the source said.