Are These Signs of Coal's New World Order?

A few interesting data points from different parts of the world in coal this week. Which could be signalling a big change underway in global production patterns.

First stop: Indonesia. Where a number of indicators emerged suggesting that thermal coal production may not be sustainable.

First, there was word early in the week that the nation's largest producer will probably cut capital spending this year.

That's Bumi Resources. Whose management was quoted by local press as saying that project spending in 2014 "may be lower than last year."

That's potentially significant. Given that Bumi produced over 80 million tonnes of coal last year--accounting for approximately 20% of Indonesia's overall output.

At the same time, high-profile Indonesia miner PT Timah gave the local coal sector the thumbs down. Saying the industry appears uneconomic.

Timah--which currently operates tin mining concessions in Indonesia--had been looking at acquiring a coal mine in East Kalimantan. But this week it called off the deal. Saying that the target mine is unprofitable.

Both of these events suggest that Indonesian coal production is facing increasing headwinds. Even as output seems to be growing in another key coal-producing nation: Australia.

Reports this week show that coal loadings at Australia's Newcastle port have been robust of late. With shipments hitting 3.45 million tonnes for the week ended this past Monday.

That's a 39% jump in coal exports as compared to the previous week. And represents a 13-week high for coal loadings out of Newcastle.

Some 80 to 85% of these shipments are thermal coal (as opposed to metallurgical coal). Suggesting that demand for the product here is seeing a resurgence.

Here's the really interesting part. All of these observations make perfect sense in light of recent events in major coal consumer China. Where a reported ban on low-quality coal imports should see less Indonesian supply coming in. And more imports being sourced from alternate suppliers of better-quality coal--Australia being the closest at hand.

Could we be seeing the start of a "new world order" in coal, triggered by this rule change? The numbers are off to an interesting start.

Here's to shifting patterns,

By Dave Forest