What lies ahead for global coal?

 

Leveraging our deep understanding of world and regional market fundamentals, we provide our forecast for coal for 2015.

The global coal sector had a traumatic 2014. First of all, there was a large fall in demand. China, the key market driver, experienced an unexpected drop in the call for imports and introduced a plethora of coal-related environmental and protectionist policies that negatively affected trade and prices.

Thermal Coal Demand

Secondly, there was ample supply availability. Australia was at the heart of this growth, increasing metallurgical and thermal exports by around 14 Mt and 20 Mt respectively. Its high coal quality also served to displace major high-cost competitors in the US and Canada.  

This demand weakness and supply strength combined to create the poorest market conditions since 2009 which had a dramatic impact on coal prices. We will see these trends continue during 2015, while the rapid fall in oil prices and currency devaluation in Australia and Russia will insulate margins and further exacerbate an oversupplied market.  

We expect benchmark metallurgical coal prices to average US$116/t this year, US$10/t lower than in 2014. Newcastle thermal coal spot prices will average US$63/t - down from US$71/t last year.

Cost cutting rather than production cutting has been the preference of most miners and, while we expect closures to accelerate this year, it is unlikely they will redress the balance. Costly take or pay obligations make it more expensive for mines to shutdown than operate at a loss, hampering a return to tighter conditions.

Mine asset valuations have also fallen considerably over the past three years and will continue to persist through 2015 due to the weakening market.

However, given our expectation of long-term strength in coal demand fundamentals, the present conditions offer a window of opportunity for both suppliers and buyers to consolidate their positions within the industry.

Read more
Global coal: A review of 2014 and outlook for 2015 [Subscription required]

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Our expert analysis of the coal, base metals, steel and iron ore industries is underpinned by our integrated energy research, providing unique commercial insight on market fundamentals. We deliver across every stage of the value chain; from asset-by-asset mine costs to price forecasts and corporate positions.

 


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