Emerging markets expected to make up for China's waning coal appetite

Drax power station

Drax power station, England | Creative Commons image by Ryan Taylor

While China looks at shutting coal fired power plants at unprecedented rates – two each day over the next two years – the rest of southeast Asia still has a strong and growing market for the black rock.

According to a Reuters analysis, the next few years will bring a geographic shift in thermal coal demand, with emerging markets making up for China's waning appetite.

The region's industrializing nations aren't as eager as China to make a switch to cleaner energy, and that's great news for coal. A recent report by the International Energy Agency says coal will be southeast Asia's "fuel of choice" over the next decade.

Indonesia, already the world's biggest thermal coal exporter, will be a major contributor.

"Indonesia will likely supply much of the extra demand in southeast Asia, as their shipping costs will obviously be much lower," a Cerrejon marketer told Reuters.

But energy consultancy firm Wood Mackenzie takes a different view on China, saying that Asian giant will drive two-thirds of forecasted growth. Weighing in on the matter last week, the consultancy firm forecasted that coal will overtake oil as the world's main source of energy by 2020.

According to William Durbin, president of global markets at Wood Mackenzie, environmental concerns will not win this race simply because coal is "plentiful and affordable."

Thermal coal CAPP price

The rest of the world is taking note of rising southeast Asian demand. Colombia, which exports most of its coal to Europe and North America, is looking to take advantage of the Panama Canal expansion to reach Asian markets.

Analysts interviewed by Reuters say seaborn trade routes will shift as the US, Australia and other coal exporters replace waning domestic demand with customers in Vietnam, Malaysia, Thailand and the Philippines.

The thermal coal market could certainly use a boost. Suffering from oversupply and declining use in the West, Central Appalachian coal prices have dropped sharply over the past three months.