Metallurgical coal in 2018: Opportunity and risk in equal measure Report

Insight 23 January 2018

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Report summary

2018 promises another year of good profits for miners, but expectations around price need to be realistic. 2017 was an exceptional year in many ways, when steel capacity closures in China, and coal supply disruption combined to force up average steel, and coal prices to multi-year highs. Flatter demand for coal, and improving global supply, will lead to a more competitive trade, and lower average prices, this year. 2018 will be notable for an increase in mine capital investment, the first real rise in eight years. Volatility will stay high, hindering some investment decisions, but also inviting greater participation in derivative coking products, in what could be a seminal year for coking coal pricing. China, as usual, has plenty of potential to disrupt the market balance this year. Coal and coke sector reform, and pollution control, will remain key to domestic demand and supply, ultimately acting to support seaborne prices in a rebalancing market

Supply-side reform and pollution control should help keep Chinese coal prices healthy in 2018
- Deleveraging coal companies still a high priority
- Pollution policies to amplify seasonality of demand
- Mining consolidation to gather pace
Mining cost and investment on the rise
- Miners spending to profit from high prices
- Mining costs are on the rise spurring higher technology investment
- Sustaining capex upward trend to continue
Chinese 2017 demand growth hard to replicate in 2018
- Steel restructuring will shift from capacity closure to capacity replacement
Global coking coal supply will improve but remain fragile
2018 a seminal year for coking coal pricing?