ITM expects coal market challenges to continue

OREANDA-NEWS. Indonesian coal producer ITM forecasts challenging conditions to persist in global coal markets this year, mainly because of oversupply and regulatory changes governing the quality of coal that can be exported to China.

Despite expectations of higher demand for imported coal from India as new power generation capacity comes on on line, the main focus remains on China where government policy will continue to affect coal trade this year, ITM said.

ITM's 2014 coal sales fell by 1pc from a year earlier to 29mn t. Sales volumes for the year were 2pc below a target at the start of the year of 29.7mn t.

China was ITM's largest customer in 2014, accounting for 23pc of its sales. ITM saw its largest sales increase in percentage terms from Thailand with a 39pc increase from a year earlier to 2.5mn t. Japan recorded the largest volume growth, buying 5.9mn t of coal from ITM last year compared with 4.6mn t in 2013.

The firm's coal sales to the Indonesian domestic market also increased from 3.2mn t in 2013 to 3.7mn t last year.

The average selling price achieved by ITM for its coal in 2014 fell by 10pc from the previous year to \$67.10/t, which in turn dragged the firm's sales revenues for the year down to \$1.92bn from \$2.16bn in 2013. The decline in revenues also weighed on ITM's profit for the year, which dropped by around 2pc to just over \$200mn.

"We expect the current low-price environment to carry on in the medium term," said ITM. "We expect Chinese government policy to continue to affect coal trade, with unofficial restrictions on thermal imports by state-owned power utilities ? which are designed to provide protection for the domestic coal industry ? likely to continue for at least part of 2015, with the risk of a further round of import quotas in 2015 still lingering."

China implemented tighter regulations on trace element restrictions on 1 January, which stipulate that imported coal must meet strict quality standards for five trace elements, such as fluorine, arsenic and chlorine.

"Uncertainty around the quality inspection process and potential shipment refusals at Chinese ports are striking Indonesian and Australian imports into China, slowing trade at least in the first quarter of 2015," ITM said.