REVISED FORECASTS FOR THE OUTLOOK FOR THE COMMUNITY COAL MARKET IN 1983

CONTENTS

>PIC FILE= "T0035667"> LIST OF TABLES

>PIC FILE= "T0035668"> INTRODUCTION

This document updates the report on the Community coal market in 1982 and the outlook for 1983 written at the beginning of the year (1).

It revises the outlook in the light of developments in the first half of the year and the likely trend to the end of this year. The numbering of the chapters, sections and revised tables is the same as in the initial report.

In particular, the estimated balances for hard coal and coke resources and deliveries in 1983 have been updated and can be compared with the corresponding balances for 1982 which follow the same model on the basis of the provisional data provided by the Statistical Office.

In the following analysis an attempt has been made, wherever possible, to compare three figures, the (provisional) results for 1982, the preliminary estimates for 1983 and the revised figure available at the time of writing (July 1983).

I. SUMMARY (Tables 31 and 32)

There will probably be a further drop in total energy consumption in the Community in 1983 down to around 861 million tonnes of oil equivalent (toe), i.e. 1,6 % lower than in 1982. A similar drop is likely in the consumption of solid fuels which will therefore maintain their share of the Community's overall energy consumption, i.e. slightly over 24 %. Where hard coal is concerned, the Community's supplies will probably break down as follows : 233 million tonnes produced, plus five million tonnes recovered and 63 million tonnes imported from non-Community countries, giving a total of 301 million tonnes. This figure is almost 19 million tonnes down on 1982 and 10 million tonnes less than the preliminary forecasts made at the beginning of the year.

A slight overall decrease in intra-Community trade is likely but the decrease in the coke sector will probably be more marked.

In spite of reduced supplies, producers' stocks will probably increase to a level of 56 million tonnes by the end of 1983.

The world coal market is still characterized by a considerable surplus of supply over demand ; the downward trend in prices expressed in dollars continues but the strengthening of the dollar compared with Community currencies slightly reduces the price advantage of imports.

In June 1983 the Commission submitted to the Council proposals for a balanced solid fuels policy (1) and a proposal for a Regulation on financial support from the Community for the industries producing solid fuels (2).

II. GENERAL ECONOMIC SITUATION AND OUTLOOK (1) (Table 2)

2. Outlook for 1983

After three years of recession there have been some signs in the early part of 1983 of a slight improvement in the trend of output and economic sentiment in most of the countries of the Community. Externally, prospects have brightened as a result of the fall in oil prices, of the recovery in the US economy which is now clearly under way, and of a firming in the trend of world trade after the decline in 1982.

However, the recovery in the Community is expected to proceed very gradually and hesitantly. Household consumption in most countries is expected to rise only very slowly since no growth in real disposable incomes is likely. Government expenditures are generally being restrained. Fixed investment should pick up gradually in the second part of the year, providing interest rates do not start rising again and thus coke off investment plans. There should also be some increase in the rate of stockbuilding. Both exports and imports are expected to rise steadily (1) OJ No C 147, 6.6.1983. (1) COM(83) 309 final. (2) COM(83) 447 final. (1) Fuller details are given in European Economy, Supplement A - No 6, published in June 1983. throughout the year, but there will be little contribution to real growth from the net foreign balance.

Although the expansion of activity is expected to continue at a moderate pace throughout 1983, the year-on-year growth of output will be very small, in part because of the falls in output which occurred in the second half of 1982. Real Community gross domestic product is forecast on average to be only 0,5 % higher in 1983 than in 1982. The forecasts for individual Community countries are shown in Table 2.

Further progress in reducing inflation is expected in most Community countries during 1983, but the rise in unemployment will continue. Already by May 1983 the unemployment rate in the Community had reached 10,8 % (seasonally adjusted). The forecast rise in output will not be sufficient to create net new employment, while at the same time the number of people available for work continues to expand.

Preliminary forecasts for 1984 suggest that the recovery in activity in the Community should be confirmed, but that the rate of expansion will be much lower than has been usual at similar stages of previous cycles. Year-on-year growth of real Community gross domestic product of only 1,6 % is forecast for 1984.

III. COAL DEMAND BY SECTOR

1. Steel

There has been no sign of increased consumption since the introduction of the production quota system in autumn 1980. The 1983 consumption figure for this sector is likely to be some 41,5 million tonnes of coke, compared with 46 million in 1982. The initial forecasts for the steel industry's coke requirements have been revised downwards, mainly for France and Italy. Steel production is likely to be between 102 and 105 million tonnes (compared with 111 million in 1982).

2. Power stations

The new estimates put deliveries to power stations (colliery and public) for 1983 at some 177 million tonnes, i.e. eight million less than in 1982 and four million less than forecast at the beginning of the year. This reduction will be particularly marked in France where the Electricité de France expects to take delivery of 12 million tonnes instead of the 17 million initially forecast, whilst colliery power stations may increase their consumption to eight million tonnes, mostly of low-grade product. The Federal Republic of Germany has also decreased its forecast by about two million tonnes. In the United Kingdom deliveries of between 78 and 88 million tonnes are forecast. This situation is due to the large stocks held at power stations and the difficulty of forecasting likely movements in these stocks.

3. and 4. Other industries

Consumption figures for other sectors such as other industries, domestic users, patent fuel, etc. have mostly been revised downwards, but not as markedly. For these areas as a whole, the actual figure for 1982 (47 million tonnes including the electricity produced for own consumption) remains unchanged rather than increasing by two million. One reason for this may be the recent trend in oil prices which has undoubtedly led many undertakings to postpone considering the possibility of converting to coal.

IV. COMMUNITY COAL PRODUCTION

1. Production statistics

Coal production will probably be some eight million tonnes down on 1982, i.e. some 233 million tonnes (instead of the initial estimate of 235 million). The eight million tonne difference is attributable to the Federal Republic of Germany, where coalfields have taken different measures to adjust production to demand.

In Germany, as in the United Kingdom, there has been a significant reduction in the underground workforce - since the beginning of 1982 nearly 5 000 jobs have been lost in Germany and 10 000 in the United Kingdom.

3. Developments in production capacity

In the United Kingdom work has begun on opening up the Belvoir coalfield and the Selby mine yielded its first coal at the beginning of summer 1983.

V. COAL PRICES

In view of the considerable fluctuation in exchange rates, the following list showing the movements of the US dollar against Community currencies may prove useful: >PIC FILE= "T0035669">

1. Changes in listed prices for Community coal (Tables 19 A and 19 B)

The initial report broke down the 1982 price increases by Community producers of hard coal and coke.

During the first six months of 1983, price increases occurred only in Belgium and France. In Germany and the United Kingdom - the biggest producers - prices remained stable. The situation as at 1 July 1983 can be summarized as follows:

Belgium

A 3 to 5 % increase in the prices of coking coal and washed fines on 1 January 1983.

France

Prices went up on 1 January and on 1 April 1983 respectively. The overall increases in the price of coal vary from 4 to 12 % depending on the product ; coke prices rose by between 3 and 10 %. Coking coal and blast-furnace coke were not affected by the increases.

United Kingdom

Rebates of between £ 7 and £ 10 were given from 3 May to 31 July 1983.

Netherlands

There was a decrease of some 6 to 9 % in the price of coke on 15 January.

2. Changes in the price of imported coal

(a) Coking coal

The easing in the guide price (1) which began in 1982 has continued. The price was approximately US $ 69 in the second quarter of 1983, i.e. at the level of the second quarter of 1980. It has decreased by 13,5 % compared with the fourth quarter of 1982, i.e. from US $ 79,70 to US $ 68,95 (a reduction of US $ 10,75). It should be remembered that the highest guide price was US $ 86,55 in the fourth quarter of 1982.

The fall in the guide price resulted mainly from the US $ 10,00 drop in cif prices since the fourth quarter of 1982, following the reduction in fob prices. The demurrage included in the guide price decreased from US $ 0,55 at the end of 1982 to US $ 0,10 in the second quarter of 1983.

The guide prices in the national currencies of the Community's coal producing countries can be summarized as follows:

Guide prices expressed in national currencies

>PIC FILE= "T0035670"> (b) Steam coal

The average price cif ARA for coal imported for the Community's power stations also went down in the first quarter of 1983 compared with the fourth quarter of 1982, dropping from US $ 66,20 to US $ 61,40 per tonne (29,3 GJ). (1) Average value cif ARA for coking coal imported from the USA and Australia under medium-term and long-term contracts.

(c) Comparison of prices for imported coking coal and steam coal >PIC FILE= "T0035671">

VI. COKE

2. Coke production and coal supplies to coke ovens

At the beginning of the year production for 1983 was expected to be approximately 54 million tonnes (i.e. 10 % less than the figure of 60 million tonnes in 1982), with all countries except Italy taking a share of the reduction. The latest estimate is for a production of only 52 million tonnes, Italy being the country mainly affected.

VII. TRADE IN COAL AND COKE

1. Intra-Community trade

Intra-Community trade in hard coal will remain more or less at the 16 million tonne level achieved in 1982 and forecast for 1983 at the beginning of the year. Where coke is concerned, the forecast is for a net drop of 4,3 million tonnes compared with the figure of five million tonnes in 1982 and a preliminary estimate of 5,9 million tonnes for 1983. This is because Belgium, France and the Netherlands, Germany's traditional coke customers, are expecting a considerable reduction in offtake.

2. Trade with third countries (Table 26)

When the initial forecasts were made, the figures did not greatly differ from the actual figures for 1981 and 1982 (71 to 72 million tonnes).

The revised figures now indicate a reduction of eight million tonnes compared with this figure, most of which will occur in France, followed - to a lesser degree - by Denmark, Italy and the United Kingdom.

The decrease in imports mainly affects steam coal. In the case of Electricité de France, there may be major fluctuations in coal requirements depending on the extent to which electricity requirements are covered by hydro-electricity, nuclear energy and colliery power stations.

Almost all of the reduction is at the expense of imports from the United States.

VIII. STOCKS OF COAL AND COKE

On 31 December 1982, producers' hard coal stocks in the Community as a whole amounted to 43 million tonnes (1). According to current estimates this figure will increase to 49 million tonnes by the end of 1983, most of the increase being accounted for by the United Kingdom. It is expected that coke stocks will increase to 12 million tonnes (1) because of additional stocks of some one million tonnes in the Federal Republic of Germany. (1) Excluding the German national reserve : hard coal = 7,2 million tonnes ; coke = 3,0 million tonnes.

It is therefore possible that by the end of the year total producers' and consumers' stocks will amount to some 137 million tonnes (coal and coke expressed in coal equivalent), representing over five months of estimated consumption.

TABLE 2 Gross domestic product in real terms (percentage change on preceding year)

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TABLE 26 Imports of coal from third countries

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