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As Coal Prices Fall, Miners Cut Output

China’s appetite for coal used in steelmaking is faltering, deepening a market downturn miners say is the worst in recent memory.

The price of steelmaking coal shipped from Australia, the world’s biggest exporter, has fallen 23% this year to roughly $86 a metric ton, its lowest level in nearly a decade. The slide extends a decline begun in 2011, during which the fuel’s value has slumped by around three-quarters.

The prolonged dive is now compelling miners to move beyond cutting costs, their first line of defense in hard times. Major suppliers Glencore PLC and Canada’s Teck Resources Ltd. are reducing production, blaming the chronic global oversupply of coal.

But analysts caution that prices will recover only if more cuts are made. The consultancy Wood Mackenzie doesn’t expect the oversupply of steelmaking coal, or coking coal, to clear up until about 2022.

China, whose breakneck economic growth has been the engine for most global commodity markets, won’t need as much steelmaking coal in future, analysts now project. That leaves miners who rushed to open new pits in the boom years to struggle.

Chinese sectors such as heavy industry and real estate are growing less quickly or slowing, causing a moderation in steel demand. China’s imports of coking coal plunged more than 40% in April from a year earlier, to 3.75 million tons. Over the first four months of 2015, imports were down by roughly a quarter from a year earlier, according to customs data.

The world’s No. 2 economy is now tilting toward growth driven by consumer-led sectors. In turn, the country’s appetite for commodities is evolving. Metals used to make electronic products are becoming relatively more popular. Copper is in, while coal is out.

“Driving much of this slowdown [in coal] is China’s transition,” said Citigroup Inc. analyst Ivan Szpakowski. “It is a transition we think there is no going back from.”

The coal-market downturn has even outpaced the collapse in prices of iron ore, the other key steelmaking ingredient. China is less reliant on imported coal than on iron ore from overseas, so as demand ebbs, it can meet more of its needs domestically.

source: http://www.wsj.com