The market for solid fuels in the Community in 1997 and the outlook for 1998 (98/C 131/04)

1. This preliminary report analyses the forecasts for 1997 and 1998 prepared by the Member States and forwarded to the Commission in November 1997. Its purpose is to provide the ECSC Consultative Committee and the circles concerned with the most up-to-date information on the developments in the Community solid fuels market.

A new report on the market for solid fuels in the Community in 1997 and the outlook for 1998 will be drawn up during the first quarter of 1998.

2. Economic activity in 1997 is expected to show a strong rebound from the estimated 1,8 % growth in 1996, mainly thanks to sustained export growth and a pick-up in private consumption in some Member States. For 1997 on average, real GDP is projected to rise by 2,6 % in the Community as a whole. There are increasingly convincing signs that the acceleration in activity will continue in 1998, as favourable developments are already seen in the domestic economy because of continued budgetary consolidation, appropriate wage trends, sustainably low interest rates, returning consumer confidence and high profitability of investment. GDP should reach, on average, a rate of 3 % in 1998.

3. With respect to energy demand, provisional figures for the first half of 1997 point to a decrease, in terms of gross inland consumption, of some 1,2 % for the Community as a whole, due to the warmer weather.

By energy source, only nuclear and hydro have increased, by 2,4 % and 1,4 % respectively, compared to the same period of the previous year, whilst oil consumption has remained roughly static. All the other energy sources have seen consumption decline, the most significant being the 5,2 % decline in solid fuels (5,1 % decline for hard coal and 5,6 % decline for lignite and peat) and the 3 % decline in natural gas.

For 1998, bearing in mind the anticipated performance of the economy and assuming constant weather conditions, energy demand forecasts suggest an increase of 1,8 %. With respect to solid fuels, however, the demand for both hard coal and lignite could decrease by 4 % and 2 % respectively.

4. Community hard coal production still continues to be affected to varying degrees by restructuring, rationalisation and modernisation plans; hard coal production in the Community for 1997 is expected to have dropped by 3,6 million tonnes (- 2,9 %) to 123,1 million tonnes, compared to 1996. All coal producing Member States are expected to witness a decline in production, varying from France (- 1,3 million tonnes, - 18,2 %), through Germany (- 1,2 million tonnes, - 2,2 %) and the UK (- 0,9 million tonnes, - 1,8 %) to Spain (- 0,3 million tonnes, - 1,4 %).

For 1998, current forecasts show a drop of some 15,2 million tonnes (- 12,3 %) to 108 million tonnes. The United Kingdom is expected to account for the bulk of the decrease, nearly 12,2 million tonnes (- 25,5 %), as the producers respond to the contraction of their market in the electricity generating sector due to the penetration of gas. Germany expects to reduce hard coal production by just over 2 million tonnes (- 3,9 %), France by 0,6 million tonnes (- 9,3 %) and Spain by 0,4 million tonnes (- 2,3 %).

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5. In 1997, internal hard coal deliveries in the Community could total 268,2 million tonnes, which is nearly 3,3 million tonnes down on the previous year. Reductions occurred in nearly all the consumer sectors, most particularly in deliveries to public power stations, which fell by 2,9 million tonnes (- 1,7 %) to 172,9 million tonnes, deliveries to coking plants (- 0,9 million tonnes, - 1,7 %) and deliveries to other industries (- 0,8 million tonnes, - 3,9 %), although deliveries for autogeneration use could increase by nearly 0,4 million tonnes (+ 6,8 %). Deliveries to the iron and steel industry also grew (+ 1,2 million tonnes, + 14,7 %). By Member State, the most significant decreases are expected in the United Kingdom (- 3,0 million tonnes), Germany (- 2,2 million tonnes) and France (- 1,7 million tonnes), countered by small increases in Spain (+ 1,4 million tonnes), Finland (+ 0,8 million tonnes) and Italy (+ 0,6 million tonnes).

With respect to the stocks of hard coal, there is expected to be a slight increase in stocks at the producers in Germany, Spain and the United Kingdom, whilst coal stocks with the electricity producers could increase from some 50,5 million tonnes to 53,3 million tonnes, mainly as a result of the higher stocks being held by the UK generators.

For 1998, total internal hard coal deliveries are expected to drop by some 24,7 million tonnes to 243,5 million tonnes. The majority of this drop (21,1 million tonnes, or nearly 86 % of the total decrease) will be from the reduction in deliveries to the power stations. Industrial use may drop by some 0,9 million tonnes, while deliveries to the domestic market are expected to reduce by 0,8 million tonnes, although there may be a very small increase in deliveries to the iron and steel industry, of just over 0,1 million tonnes. By country, the main reductions are foreseen in the United Kingdom (- 15,5 million tonnes), France (- 4,3 million tonnes), Denmark (- 3,0 million tonnes) and, to a lesser extent in Portugal (- 1,0 million tonnes) and Belgium (- 0,5 million tonnes).

The electricity generating sector, as the main coal consumer, largely determines the trends in the deliveries of hard coal. However, it is important to note that the quantitative projections in coal use need to be treated with considerable caution, since the national analyses used to produce the figures tend to treat coal as the 'residual fuel` required to supply projected total energy demand after determined amounts available from other fuels or energy sources have been supplied. Therefore, variations in the production of hydro, or in the performance of nuclear plants can introduce large changes in the projections for coal. Having said that, there is no doubt of the increasing penetration of natural gas to the detriment of solid fuels, especially in the United Kingdom.

6. With respect to the electricity generating industry, total electricity generation could decrease by around 1,5 % during 1997 compared to 1996. Whilst gas, nuclear and hydro generated electricity can be expected to increase, this will be more than offset by the decrease in electricity generation from oil, coal and lignite.

Hard coal deliveries to public power stations could fall by 2,9 million tonnes during 1997 compared to 1996, with the main decreases expected in the United Kingdom (- 2,8 million tonnes), Germany (- 2,1 million tonnes) and France (- 2,0 million tonnes). These more than offset the smaller increases expected in Spain (+ 1,4 million tonnes), Finland (+ 0,9 million tonnes), Italy (+ 0,6 million tonnes), Denmark (+ 0,4 million tonnes) and Portugal (+ 0,4 million tonnes).

Current 1998 forecasts indicate a potential drop of almost 20 million tonnes, of which over 14 million tonnes are accounted for by the United Kingdom alone, as a result of new non-coal fired plants being commissioned, and about 2,9 million tonnes, 2,1 million tonnes and 0,7 million tonnes in Denmark, France and Portugal respectively. In most other Member States there is a stability or slight decrease in deliveries.

7. Deliveries to industry as a whole may have increased by 0,4 million tonnes (1,4 %) to 29,5 million tonnes during 1997, due to the significant increase in deliveries of hard coal to the iron and steel industry, which more than outweighed the decrease in deliveries to the other industries. The current forecasts for 1998, however, indicate an overall reduction of some 1 million tonnes to 28,5 million tonnes, despite the continued growth in deliveries to the iron and steel industry.

8. Crude steel production for 1997 is likely to reach some 158,0 million tonnes, which would represent an increase of about 7,3 % (+ 10,8 million tonnes) compared to 1996. For 1998, crude steel production could increase by a further 5 million tonnes to reach 163 million tonnes.

The final figure for coke production in 1997 may be 39,9 million tonnes, which would be 0,4 million tonnes (- 0,9 %) less than in 1996. However, imports from third countries could have increased by 0,9 million tonnes to 7,4 million tonnes. Deliveries to steelworks could be 42,3 million tonnes (+ 1,2 %), whilst other deliveries of coke in the Community are expected to be some 5,6 million tonnes, which would be 2,1 % up on the previous year.

For 1998 a decline can be expected in production (down 0,5 million tonnes or - 1,3 %) and in deliveries both to the steel industry (down 0,1 million tonnes or - 0,3 %) and to other Community consumers (- 6,3 %).

9. Lignite and peat resources (production and imports) in the Community in 1997 are expected to be 12,4 million tonnes (- 4,5 %) lower than in the previous year, at around 262 million tonnes. The significant decline in lignite production in Germany appears to be continuing, with a reduction of 11,7 million tonnes to 175,6 million tonnes, due to the lower demand from the power plants (- 6,6 million tonnes), the briquetting plants (- 4,5 million tonnes) and 'others` (- 0,7 million tonnes). The principal producing area affected by the decline is Lausitz (- 8,7 million tonnes), while in Helmstedt lignite production is forecast to increase slightly

For 1998, lignite and peat resources are expected to decrease again by 5,7 million tonnes (- 2,2 %), owing to the anticipated fall in demand in Germany, partly offset by planned increases for power generation in Greece (2,3 million tonnes, + 3,9 %).

10. In 1997, imports of hard coal from third countries are expected to have risen by 4,3 million tonnes (+ 3 %) in comparison with the previous year. Total imports are estimated at 145,5 million tonnes, with the main increases expected in the United Kingdom (+ 4,7 million tonnes), Germany (+ 1,1 million tonnes) and Denmark (+ 1,1 million tonnes), partly offset by the decreases in Spain (- 2,9 million tonnes), and France (- 0,9 million tonnes). With respect to the suppliers, changes in imports are principally expected to benefit Colombia (+ 5,1 million tonnes) and, to a lesser extent, Australia (+ 1,3 million tonnes), whilst South Africa may see a reduction of 0,7 million tonnes in tonnages into the Community.

In 1998, imports of hard coal from third countries could decrease by 2,8 million tonnes (- 1,9 %), compared to 1997, to reach 142,7 million tonnes. The important increase in imports foreseen into Spain (+ 2,6 million tonnes) and Germany (+ 1,8 million tonnes) are more than outweighed by the decreases anticipated in most other Member States, especially Denmark (- 3 million tonnes), the United Kingdom (- 1,5 million tonnes), Portugal (- 1 million tonnes) and France (- 0,5 million tonnes). By suppliers, changes are not expected to be significant except for the fall of imports from the United States and South Africa (- 1,8 million tonnes and - 1,3 million tonnes respectively).

11. After a robust end to 1996, traded coal prices have been falling in 1997. Some buyers are waiting for a further reduction, but this is not universally expected. After the very low rates of last autumn, freight rates were higher during the early part of 1997 and, after their customary weakness in the summer, appear to have been stronger during the autumn. However, particularly in the Panamax market, some cheap deals have been available.

Competitor fuels have, in general, maintained their price levels. The crude oil price has been sustained at the higher levels of recent years, and the HFO price has already mirrored this. However, petcoke has been competing in the European market this year; prices have been lower than in 1996, when the US market was short of supplies.

With respect to the prices for imported coal, the price for coking coal in the third quarter of 1997 is USD 57,54 per tonne of coal equivalent (tce) as against USD 57,44 per tce for the same quarter of the previous year.

The weighted average price of steam coal consumed in power stations by utilities (contracts above and below one year, and all origins) imported into the Community in the first quarter of 1997 (the latest information available at the time of writing) was USD 47,69 per tce compared with USD 50,31 per tce for the same period in the previous year.

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12. Despite expansion in the Community's GDP during 1997 there is likely to be a slight reduction in total energy demand, with solid fuels being hit particularly hard. The first forecasts for solid fuels for 1998 would indicate a continuation of the downwards trend displayed since 1991.