Commodity Market Report

Global metallurgical coal long-term outlook H1 2016

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06 June 2016

Global metallurgical coal long-term outlook H1 2016

Report summary

Despite the price reversal of March and April, metallurgical coal trade will continue to be undermined by weak demand. India's modest demand growth will continue, but will be countered by losses in Japan and China, resulting in a flat outlook for hard coking coal (HCC) into early next decade. HCC prices will remain sluggish, ranging from US$87 to US$94/t through 2023. China’s supply-side reform in steel and mining threatens a period of high volatility in met coal demand and pricing. Combined with Anglo's imminent departure from the trade - and prospects of greater spot activity - we expect prices to fluctuate more frequently than in the past. Ultimately, India's growth trajectory will determine the rate and timing of a recovery in prices. For those miners that remain, the long-term future is brighter. Prices will recover to between US$115/t to US$120/t (in real terms) once consistent demand growth requires new greenfield development post 2027.

Table of contents

    • Global seaborne demand for metallurgical coal
    • Change in Chinese government approach leads to lower forecast economic growth
    • Demand adjustments in other regions
    • Less imported coal means fewer projects needed to fill demand
    • Hay Point LV marginal cost of supply H2 2015 versus H1 2016 (US$/t)
    • China's attempts to rebalance steel and mining sectors will shape the trade in met coal
    • Indian infrastructure sector is key to long-term growth
    • Some growth opportunities exist for suppliers
    • Hard coking coal supply-demand balance and mine category (Mt)
    • The metallurgical coal supply industry remains in the process of ridding itself of debt, and of high-cost production. The trend began slowly as most suppliers looked to reduce costs and ride out the downturn. But as weak prices persist, and the outlook remains bleak. a greater number of operations have been placed on care and maintenance, or have had their decommissioning brought forward.
    • US met coal sector undergoing a transformation
    • The rapid price rise, and subsequent fall, in the early part of this year have highlighted some subtle changes occurring in the trade. The supply side of the premium HCC trade is tighter than it has been for a number of years, and was unable to respond to the short-term jump in China demand seen earlier this year. While insufficient to prolong prices at US$100/t, we expect premium HCC supply to be intermittently tight, if volatility in demand occurs.
    • Volatility to continue
    • Underlying weak demand persists through 2020
    • Australian versus Global LV marginal costs (US$/t)
    • Prices constrained until India expands
    • Market trends
    • PCI pricing
    • Rate of decline in China's steel and mine capacity
    • Environmental policies could make BOF steel route less competitive
    • Indian coal demand grows faster than expected

Tables and charts

This report includes 6 images and tables including:

  • Executive summary: Image 1
  • China crude steel production 2016 to 2035 – H1 2016 versus H2 2015 (Mt)
  • Supply capacity less demand 2016 to 2035 (Mt)
  • Executive summary: Image 4
  • Executive summary: Image 5
  • Executive summary: Image 6

What's included

This report contains:

  • Document

    cms met coal prices data H1 2016.xls

    XLS 432.50 KB

  • Document

    Global metallurgical coal long-term outlook H1 2016.pdf

    PDF 1.14 MB

  • Document

    Global metallurgical coal long-term outlook H1 2016

    PDF 319.46 KB

  • Document

    Executive summary

    PDF 159.76 KB

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