ENERGY PRICES AND TAXES, 3rd Quarter 2004 - xi STEAM AND COKING COAL PRICES Larry Metzroth, Principal Administrator Energy Statistics Division SUMMARY This article provides analyses of customs unit values and end-user prices reported by OECD Member countries: 1 Customs unit values are average values derived from customs administrations total volume and total value data. These data indicate broad price movements as they are averages of all qualities of coal without regard to the end-use of the coal or to the contract terms and conditions under which the trade occurs. End-user prices are those paid by end-users in the power sector and in industry; and are reported by Member countries in a quarterly reporting system which the IEA s Standing Group on Long Term Co-operation initiated in 1981. Data received are published in the IEA quarterly publication Energy Prices and Taxes. Unless otherwise stated, prices are reported in US dollars in the year specified (i.e. current US dollars). In addition to the official price statistics presented, coal price statistics published in the industry press are used to summarize short term spot steam coal price trends. Although not official in the sense that they are provided by member countries, there is a close correlation between prices published by the industry press and national coal price statistics. INTERNATIONAL STEAM COAL PRICES Customs Unit Values Steam Coal Import Unit Values The estimated cost of steam coal imported by the two major IEA importing areas (i.e. EU 15) countries and Japan) averaged $35.63/t in 2003, measured by customs unit values, a decrease of 2.5% from the level of $36.55/t in 2002. This compares with a fall of -5.5% in 2002 (from the 2001 level). 1 This article is based on the IEA publication Coal Information 2004. The complete study is a comprehensive reference book on current trends in the world coal market for prices, demand, trade supply and production capacity. Table 1. Steam Coal: Import Unit Values CIF IEA Japan EU -15 2001 38.67 37.95 42.79 2002 36.55 36.95 38.57 2003 35.63 34.93 39.74 Change 2001 to 2002-5.5% - 2.6% - 9.9% Change 2002 to 2003-2.5% - 5.4% 3.0% The average cost of steam coal imported into Japan was $34.93/t, a decrease of 5.4% in 2003 from the average price level in 2002 of $36.95/t. This compares to a decrease of 2.6% in 2002 from the 2001 level of $37.95/t. In 2003, lower prices were paid for imports from all major steam coal suppliers. The cost of steam coal imported into the European Union-15 averaged $39.74/t, increasing 3.0% in 2003 from the average price in 2002 of $38.57/t. This compares to a decrease of 9.9% in 2002 from the 2001 level of $42.79/t. In 2003, unit values for steam coal increased for imports from all major suppliers; however, EU-15 coal consumers dampened the average price growth by shifting tonnage to lower cost suppliers in South Africa and Indonesia. Export Unit Values Export unit values reflect the price of coal at the point of exiting a producing country; thus, the price includes the transportation cost of moving the coal from the producing mine to the point of exit; however, it excludes the international transportation cost. Export unit values summarised in the table below are free on board () for Australia, Canada, Columbia, Indonesia and South Africa; and free at shipside (FAS) for the United States. The value in countries includes the cost of loading at the port of exit, while it is excluded in the data for the United States. Average and FAS export unit value (in US dollars) for Australia, Indonesia, Colombia, and South Africa decreased in 2002, while the price increased in the United States. In 2003, average export unit values declined again in Australia, Indonesia, South Africa and the United States but increased in Colombia.
xii - ENERGY PRICES AND TAXES, 3rd Quarter 2004 Table 2. Steam Coal: Export Unit Values (/FAS) Australia Average to all markets Colombia Indonesia South Africa US FAS 2001 28.71 32.07 31.36 28.24 34.51 2002 28.01 29.98 30.09 26.24 37.70 2003 25.41 28.63 33.42 24.98 37.00 Change 01 to 02 02 to 03-2.4% - 9.3% - 6.5% - 4.5% - 4.0% 11.1% - 7.1% - 4.8% 9.4% - 1.9% Comparison to Oil Import Values In many OECD Member countries, steam coal competes directly with heavy and crude oil in the power generation sector. It is appropriate to compare imported steam coal and selected imported oil prices. OECD Imported oil and coal costs are summarised in Figure 1. In 2003, the average import cost of steam coal increased 1.5% from $40.85/tce to $41.46/tce. In comparison the average import cost of crude oil increased 17.5% from $121/tce to $143/tce. This compares with a modest increase of 2.2% in 2002 from the 2001 average level of $119/tce. The Rotterdam average spot price of heavy fuel oil (3.5% sulphur) was 13.2% higher in 2003 at $107/tce than the $95/tce average in 2002. This compares with an increase of 15.8% in 2002 from the 2001 level of $82/tce. In 2002, the OECD average imported coal cost declined 5.5% from a level of $43.21/tce. In terms of cost per unit of energy, crude oil was 3.4 times, and high sulphur fuel oil was 2.6 times more expensive respectively than the cost of energy supplied with steam coal. The cost advantage of steam coal expanded in OECD energy markets in 2003, even though average steam coal cost increased modestly because of the stronger increases in the prices of crude and heavy fuel oil. Comparison of Import and Export Unit Values Figure 2 summarises long term trends for Japanese and European Union-15 import unit values and Australian, Colombian, and South African export unit values. The intent is to show the average difference between export and import values for three major coal exporters and the two major coal importing regions. The difference theoretically relates to average international transport costs. The chart illustrates that import values and export values tend to fluctuate in tandem suggesting that, over the long run, international transportation rates remain relatively constant. However, it should be noted that over the twenty two-year period summarized, the relative distance between importers and exporters has decreased, indicating that transportation rates have diminished as a part of the total delivered cost of coal. Because the chart is based upon annual data, and does not show any data for 2004, a sharp increase in seaborne transportation rates that was experienced beginning in the late-summer of 2003 is not apparent in the chart. The chart does illustrate however, that a sharp increase in Colombia-origin steam coal price was reflected in the EU-15 market import values in 2003. 175 Figure 1. OECD International Trade Values for Steam Coal and Oil (ce) 150 125 USD/tce 100 75 50 25 0 1Q1985 1Q1986 1Q1987 1Q1988 1Q1989 1Q1990 1Q1991 1Q1992 1Q1993 1Q1994 1Q1995 1Q1996 1Q1997 1Q1998 1Q1999 1Q2000 1Q2001 1Q2002 1Q2003 1Q2004 Crude Oil (OECD CIF import cost) Steam Coal (OECD CIF import cost) Heavy Fuel Oil (Spot Rotterdam) Notes: Spot prices for heavy fuel oil are not directly comparable to customs unit values for steam coal. They are, however, closely correlated with average CIF crude oil prices, which are, by definition comparable to customs unit values for steam coal. As a consequence, it is not unreasonable to compare customs unit values for steam coal with spot prices of heavy fuel oil. Steam coal and crude oil are IEA average and CIF import values. Steam coal excludes intra-eu trade. Heavy fuel oil is Rotterdam spot market value, 3.5% sulphur.
ENERGY PRICES AND TAXES, 3rd Quarter 2004 - xiii Figure 2. Steam Coal Import and Export Value Comparison $65 $60 $55 $50 $45 $40 $35 $30 $25 $20 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2002 Japan CIF Australia South Africa Colombia EU 15 CIF Spot Steam Coal Prices Figures 3 and 4 summarise movements in average monthly spot coal prices in two coal consuming regions and two coal producing countries. The price statistics are estimated by The McCloskey Coal Group Ltd and published in McCloskey s Coal Report on a fortnightly basis. The estimates are based upon surveys of actual spot transactions in the importing and exporting regions. Though not official IEA statistics, the prices are illustrated here to show short-term and more recent steam coal price movements. The trend illustrated by the charts clearly indicates a surge in both CIF (imported) and port (exported) steam coal prices, beginning in late 2003 and continuing into 2004. Driven by increased demand, and stagnant supply growth in the Atlantic market (EU-15 and East/Gulf Coast North America), South Africa steam coal prices showed a gradual upward pattern even in early 2003. After fluctuating in a narrow range in the fourth quarter of 2002 and the first quarter of 2003, steam coal prices surveyed at Richards Bay started drifting upward in April 2003. By August the drift had become a surge that continued into the summer of 2004. In January 2004, surveys suggested that Richards Bay-origin steam coal prices were as much as 53% higher than the year before. By June 2004, they showed a rise of another 50%. Although prices at Newcastle, Australia began rising somewhat later in 2003, they surged even more strongly in the fourth quarter of 2003. The surveys suggest a year-on-year increase of nearly 68% by January 2004. Surveys suggest price rises of another 47% by June 2004. Delivered coal prices increased even more rapidly in 2003 than port prices. The delivered spot steam coal prices into the Northwest Europe increased over 80% in 2003; and nearly 88% in the Asian market. Most of this price surge occurred in the second half of the year, and the higher rate of increase over export prices is related to a concurrent surge of seaborne vessel rates that occurred in 2003. The rate of delivered price rises abated somewhat in 2004, with the January-to- June increase reaching 8% in Europe, but coming in at over 26% in Asia. Because IEA presents annualized data in this narrative, the strength of the steam coal price surge is not reflected in the IEA price statistics, but it will undoubtedly lead to significantly higher annualized prices in 2004, and perhaps even 2005. Several factors have been identified that stimulated the price rises. First, supply in the Atlantic Market has been tight as production growth in South Africa, Colombia and Venezuela stagnated in 2002 and 2003. In the face of slow supply growth demand growth had increased steadily. In the Pacific market, price increases were stimulated by factors in China. Surging domestic demand growth ended a string of Chinese export coal volume increases, just as Asian demand strengthened due economic expansion and the addition of several new coal-fired power plants. Further, surging Chinese demand for bulk commodities absorbed excess seaborne bulk cargo capacity, and stimulated sharp shipping rate rises.
xiv - ENERGY PRICES AND TAXES, 3rd Quarter 2004 Figure 3. Delivered Steam Coal Prices in Europe and Asia 80 70 60 US CIF 50 40 30 20 Jan 91 Aug 91 Mar 92 Oct 92 May 93 Dec 93 Jul 94 McCloskey Northw est Europe CIF Source: The McCloskey Coal Group Ltd, McCloskey s Coal Report 65 Feb 95 Sep 95 Apr 96 Nov 96 Jun 97 Jan 98 Aug 98 Mar 99 Oct 99 May 00 Dec 00 Jul 01 Figure 4. Port Steam Coal Prices in South Africa and Australia McCloskey A sian CIF Feb 02 Sep 02 Apr 03 Nov 03 Jun 04 55 US 45 35 25 15 Jan 97 May 97 Sep 97 Jan 98 May 98 Sep 98 Jan 99 May 99 So. Africa (Richards Bay) Source: The McCloskey Coal Group Ltd, McCloskey s Coal Report Sep 99 Jan 00 May 00 Sep 00 Jan 01 May 01 Sep 01 Jan 02 May 02 Australia (New castle) Sep 02 Jan 03 May 03 Sep 03 Jan 04 May 04 Sep 04
ENERGY PRICES AND TAXES, 3rd Quarter 2004 - xv Another factor is that the value of the US dollar has depreciated steadily since early 2002, and US dollar denominated prices and transport rates have increased to reflect this decline. In 2003, the value of the Australian dollar and the South African Rand increased 24% and 27% respectively against the US dollar. The value of the yen increased 12% and the value of the Euro increased 17% during the same timeframe. By mid-2004, steam coal prices reached US dollar denominated price levels, both at the point of export and the point of import, that are unprecedented in the last twenty years. If the international coal market follows its traditional pattern, however, these price rises will bring to the market sufficient production and shipping volume to dampen price growth, and ultimately result in price declines. INTERNATIONAL COKING COAL PRICES Customs Unit Values In Japan, average customs unit values for coking coal imports increased to $42.14/t in 2002, up 2.5% from 2001, as a result of increases in import costs from all suppliers except the China. In 2003, average customs unit values decreased 1.0% to $41.73/t (Table 3). Although all suppliers prices increased, the Japanese offset price increases by shifting to lower cost suppliers in Australia, Asia and Russia from higher cost suppliers in North America. Table 3 Coking Coal: Import Unit Values (CIF) Japan EU-15 2001 41.13 53.50 2002 42.14 56.50 2003 41.73 58.16 Change 2001 to 2002 2.5% 5.6% Change 2002 to 2003-1.0%% 2.9% In the EU-15, average customs unit values increased in 2002 by 5.6% to $56.50/t. Coking coal import costs from Australian, Canadian, and United States suppliers increased; while cost from Russia, South Africa and Poland declined. In 2003, average customs unit values increased 2.9% from the 2002 level, due to increased import costs from Australia, Canada, Poland, the United States and South Africa. Average import costs for coal originating in Russia declined in 2003. Table 4. Coking Coal: Export Unit Values (/FAS) Australia US Canada 2001 36.93 45.88 38.57 2002 40.16 50.06 41.54 2003 39.75 49.11 41.58 Change 2001 to 2002 8.7% 9.1% 7.7% Change 2002 to 2003-1.0% - 1.9% 0.1% Export unit values summarised in Table 4 and are free on board () for Australia and Canada; and free at shipside (FAS) for the United States. Thus, the value in Australia and Canada includes the cost of loading at the port of exit, while it is excluded in the data for the United States. In 2002, coking coal export unit values increased for Australia, the United States and Canada respectively by 8.7%, 9.1% and 7.7%, to $40.16/t, $50.06/t and $41.54/t from respective levels of $36.93/t, $45.88/t and $38.57/t in 2001. Coking coal export unit values decreased for Australia and the United States in 2003. The value was down 1.0% in Australia to $39.75/t, and down 1.9% in the United States to $49.11/t. The price for coal shipped from Canada increased marginally by 0.1% to $41.58/t. Though CIF coking coal prices did exhibit some strong short term price rises in late 2003 and early 2004, they were more closely related to rises in shipping rates. Coking coal prices generally have remained more stable due to the fact that quality parameters are very strict, and most coal moves under terms defined by contracts. However, ongoing coking coal supply restraint in the face of strong global steel demand augurs rising and CIF coking coal prices for the near term.