Commodity market report

Global metallurgical coal long-term outlook H1 2015

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Report summary

The metallurgical coal market has experienced a continuation of lowering prices and stagnant demand. The quarterly contract price for low-volatile Australian coking coal has fallen from US$119/t in Q4 to US$93/t for the Q3 2015 and we anticipate very little recovery over the next few years. Operating mines will be able to meet demand until 2023, when prices will require a more substantial boost to justify new mines. Prices will reach about US$170/t by the end of our forecast in 2035.

What's included

This report contains

  • Document

    CMS Met Coal Demand overview data June.xls

    XLS 3.51 MB

  • Document

    CMS Met Coal Prices data June.xls

    XLS 427.50 KB

  • Document

    CMS Met Coal Supply overview data June.xls

    XLS 1.53 MB

  • Document

    CMS Met Coal Additional data June.xls

    XLS 3.96 MB

  • Document

    CMS Met Coal Country Plant data June.xls

    XLS 16.25 MB

  • Document

    Global metallurgical coal long-term outlook H1 2015

    PDF 1.09 MB

  • Document

    Global metallurgical coal long-term outlook H1 2015

    ZIP 22.04 MB

  • Document

    Executive summary

    PDF 192.73 KB

  • Document

    Economic outlook

    PDF 90.65 KB

  • Document

    Prices

    PDF 198.31 KB

  • Document

    Demand

    PDF 370.17 KB

  • Document

    Supply

    PDF 280.50 KB

  • Document

    Infrastructure

    PDF 254.28 KB

  • Document

    Trade

    PDF 98.27 KB

  • Document

    Supply-demand balances

    PDF 95.42 KB

  • Document

    Risks and uncertainties

    PDF 91.45 KB

Table of contents

      • Property sector at heart of problem
      • Chinese government policies are distorting the market
      • Any short-term recovery will need to be supply driven
      • Steel demand will begin to grow again
      • Domestic supply will decline
    • India needs to remove shackles constraining investment and project delivery before it can exert its influence
    • Forecast demand growth will provide opportunities in all supply regions
    • Most supply gains will be reaped by Australia
    • Current supply is sufficient to meet demand until 2023
    • Incentive prices will ultimately provide price support
    • Price differentials will revert to historic relationships as market recovers
    • Risks to the forecast
  • Economic outlook
    • Industrial overcapacity to cast a pall over markets for the next few years
    • Australian marginal costs will set prices through downturn
    • Chinese Government support for thermal coal producers inadvertently affecting the metallurgical coal sector
    • US supply will have to shrink
      • China will play an important role in the recovery
      • Broader supply adjustment is also a pre-requisite for recovery
    • A lack of supply investment and rising import demand will create tight conditions early next decade
    • Price convergence will reverse post recovery
    • Chronic oversupply in Chinese property and industrial sectors at the heart of demand malaise
    • Steel demand to grow in China, but not coke demand
    • Urbanisation in India and China are still fundamental parts of our long-term view
    • If India reaches targets, seaborne metallurgical coal trade will expand by 40% by 2035
      • China will need good quality coals, while India will increase proportion of weaker coals in blends
      • A trend towards lower volumes of quarterly-priced contract coal continues
      • Chinese government acting to help struggling domestic coal producers - steel overcapacity still strong
      • Numerous Indian blast furnace projects will increase seaborne demand
      • Over 100 Mt of new Indian demand by 2030
      • A move towards index-linked pricing
      • POSCO-Krakatoa will provide most of the BOF steel production
      • Indonesia will need to import high-quality coking coals
      • Japan's coal imports will decline over time
      • Tonnage settled on shorter-term pricing agreements will increase
      • After having added Dangjin B BF, South Korean demand should remain relatively flat.
      • Flat demand forecast to 2035
      • Formosa Plastics steel mill opening in 2015
      • EMEARC seaborne imports will increase 11 Mt to 2035 – concentrated in Turkey, Ukraine, Italy and Germany
      • Australia maintains a stronger presence to EMEARC than in our previous update
      • Germany should need an additional 1 Mt of cokemaking capacity next decade.
      • Taranto's future still uncertain and Piombino could switch steel production to EAF
      • Turkey is planning new blast furnaces and coke ovens.
      • Steel production not to return to 2013 levels until 2018, followed by strong growth
      • The growth in PCI coal adoption has slowed.
      • Tata and SSI have invested in Skunthorpe, Port Talbot and Teesside operations
      • Import demand will rise by 1 Mtpa by 2035
      • US demand should remain flat to decline, most steel growth by EAFs
      • Brazil
      • Coal demand is expected to resume growth
      • Petrobras' issues have negatively impacted GDP
      • Steel export increases hope to allow production levels to remain flat
      • Usiminas idles two blast furnaces
      • Charcoal replacement for coking coal should rise
      • Mexico
      • Steel demand growth propelled by strong activity in US
    • Global supply will grow by a net 115 Mtpa by 2035
    • Australia is likely to gain the majority of new demand over the next 20 years.
    • Exchange rates have lowered costs (in local dollars) for nearly all producers outside the US
    • Lower oil prices have lowered costs, but also reduced the competitive position of US exporters
    • 2015 hard coking coal costs average US$89/t FOB, with Australian mines being most competitive
    • Australia is the standout competitor
    • Contrasting performances between majors and smaller miners
    • Investment and industry landscape changing
    • Mid-term competition will limit Australia's export growth
    • Opportunities remain greatest for PCI and SSCC
    • Low prices have driven Canadian mine closures
    • Lowered exports push Ridley terminal expansions into holding pattern
    • Production growth should rise after 2020, as numerous projects come on-line
    • US exports should decline by 10 Mt in 2015
    • High-volatile coals with strong fluidity fill important niche in market
    • US producers are feeling financial stress
    • Recent US metallurgical property sales have been divestments to smaller producers
    • US exports will average almost 39 Mtpa throughout forecast
    • Falling domestic coal prices challenge producers
    • Government lowers some tariffs to assist struggling producers
    • Small, inefficient mines are being closed
    • Most new met tonnes willl come from Shanxi Province mines, but beyond 2015 China's production falls
    • Oil price and rouble decline propel Russian exports
    • But market adjustments could limit export potential
    • Infrastructure and project development are key to reaching export potential
    • PCI exports likely to be volatile
    • Semi-soft producers are struggling
    • Difficult seasonal transportation setting for export coal
    • Domestic steel works have used a mix of local coal and Australian imports
    • The next few years could see a small uptick in domestic demand.
    • Indonesian exports to climb to 12 Mt by 2019
    • Mozambique is at a pivotal point for growth with new infrastructure
    • Coals have strong CSRs and good blending properties
    • Post-2020, Mozambique’s export forecast lower than in last update
    • Low prices constraining Mongolian supply
    • Government intervention has restricted investment, but is easing
    • There is still potential for large scale export expansion
    • Colombia struggling with high costs and transportation changes
    • Low seaborne prices cause reduction at New Zealand’s Stockton mine
    • Poland’s JSW shifting production to newly purchased mine
    • Czech producer New World Resources likely to close Paskov mine in 2017
    • Ukraine production still held back due to the conflict with Russia
    • Ocean freight outlook
    • Hard coking coal’s share of seaborne trade will decrease to 2035
    • Australian exports will shift from China to India
    • Australia’s presence in Europe will start to wane after 2020
    • Global demand will increase by 74 Mt, with growth profile defined by China and India
    • PCI use will increase from 16% to 19% over the forecast period
    • China use of local coals is nearly two-and-a-half times all seaborne trade
    • US domestic demand will decline due to recent switches to EAF
    • EMEARC countries consume about 60 Mt of non-traded coal
    • Landborne trade will climb, largely due to Mongolian moves to China
    • Seaborne-traded metallurgical coal is only about one-fourth of the global total
    • Weaker than forecast FX rates (vs. US$) would favour other supply regions
    • Chinese policies could further support for domestic coal producers
    • Lower Chinese steel demand would reduce import need
    • Indian demand could outperform in near term
    • Russian supply growth hinges on infrastructure projects
    • Indonesian supply development could be slower in the near term
    • Mongolian supply heavily dependent on Tavan Togoi development
    • US export level is dependent on price premium in Europe

Tables and charts

This report includes 78 images and tables including:

Images

  • GDP assumptions, selected countries (% growth, year-on-year)
  • Industrial production assumptions, selected countries (% growth, year-on-year)
  • Top 10 seaborne metallurgical coal importers (Mt)
  • Change in seaborne metallurgical coal supply, 2015 vs. 2035 (Mt)
  • Hard coking coal market balance
  • Hard Coking Coal Incentive Prices FOB Port (US$/t 2015 Real)
  • HCC supply capacity versus demand (Mt)
  • Hard coking coal market balance
  • HCC supply versus demand
  • Marginal FOB cash cost of global LV HCC supply 2015 to 2035 (US$/t Real 2015)
  • Hard Coking Coal Incentive Prices FOB Port (US$/t 2015 Real)
  • World iron, steel, met coal forecast
  • Hot metal production by region (Mt)
  • Sources of hot metal production growth (Mt)
  • Seaborne metallurgical imports by region (Mt)
  • Top 10 seaborne metallurgical coal importers (Mt)
  • Seaborne metallurgical coal exports by country (Mt)
  • Change in seaborne metallurgical coal supply, 2015 vs. 2035 (Mt)
  • Hard coking coal cash cost curve 2015 US$/t FOB
  • Hard coking coal cash cost curve 2035 (US$/t FOB)
  • Metallurgical coal supply from Australia by demand country (Mt)
  • Metallurgical coal supply from Australia by quality (Mt)
  • Metallurgical coal supply from Canada by demand country (Mt)
  • Metallurgical coal supply from Canada by quality (Mt)
  • Metallurgical coal supply from US by demand country (Mt)
  • Metallurgical coal supply from US by quality (Mt)
  • Russian coal margins (2015 vs 2014)
  • Russian domestic coal index prices (US$/t)
  • Metallurgical coal supply from Russia into demand countries (Mt)
  • Russia - seaborne metallurgical coal exports by quality (Mt)
  • Metallurgical coal supply from Indonesia into demand countries (Mt)
  • Indonesia - seaborne metallurgical coal exports by quality (Mt)
  • Metallurgical coal supply from Mozambique into demand countries (Mt)
  • Mozambique - seaborne metallurgical coal exports by quality (Mt)
  • Baltic Dry Bulk Index history
  • Net increase in vessel fleet (Mdwt)
  • Bunker price in Northern Europe vs Brent oil price
  • Bunker price in Singapore vs Dubai oil price
  • Time Charter rates vs bunker prices in the Pacific region
  • Baltic Capesize Index
  • Dry bulk trade net Increase (Mt) and 4TC Average Baltic Cape size Index
  • Dry Bulk Carriers’ fleet distribution by year of build (MDWT)
  • Asia-Pacific seaborne metallurgical coal import demand (Mt)
  • EMEARC/Americas seaborne metallurgical coal import demand (Mt)
  • Asia-Pacific seaborne metallurgical coal demand forecast (Mt)
  • Hard coking coal demand pattern in the Pacific (Mt)
  • PCI demand pattern in the Pacific (Mt)
  • China - steel production and metallurgical coal imports (Mt)
  • China – global metallurgical coal imports by country (Mt)
  • India - steel production and metallurgical coal imports (Mt)
  • India - steel production and metallurgical coal imports (Mt)
  • Indonesia - steel production and metallurgical coal imports (Mt)
  • Indonesia - steel production and metallurgical coal imports (Mt)
  • Japan - steel production and metallurgical coal imports (Mt)
  • Japan - Seaborne metallurgical coal imports by country (Mt)
  • South Korea - steel production and metallurgical coal imports (Mt)
  • South Korea - Seaborne metallurgical coal imports by country (Mt)
  • Taiwan - steel production and metallurgical coal imports (Mt)
  • Taiwan - Seaborne metallurgical coal imports by country (Mt)
  • Vietnam - steel production and metallurgical coal imports (Mt)
  • Vietnam - Seaborne metallurgical coal imports by country (Mt)
  • Germany - steel production and metallurgical coal imports (Mt)
  • Germany - Seaborne metallurgical coal imports by country (Mt)
  • Italy - steel production and metallurgical coal imports (Mt)
  • Italy - Seaborne metallurgical coal imports by country (Mt)
  • Turkey - steel production and metallurgical coal imports (Mt)
  • Turkey - Seaborne metallurgical coal imports by country (Mt)
  • Ukraine - steel production and metallurgical coal imports (Mt)
  • Ukraine - Seaborne metallurgical coal imports by country (Mt)
  • United Kingdom - steel production and metallurgical coal imports (Mt)
  • United Kingdom - Seaborne metallurgical coal imports by country (Mt)
  • Brazil - steel production and metallurgical coal imports (Mt)
  • Brazil - Seaborne metallurgical coal imports by country (Mt)
  • Mexico - steel production and metallurgical coal imports (Mt)
  • Mexico - Seaborne metallurgical coal imports by country (Mt)

Tables

  • Exchange rate assumptions, selected currencies (local per US$)
  • Global metallurgical coal supply demand balance (Mt)
  • Global metallurgical coal supply demand balance by country (Mt)

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