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Asian coal prices close to floor, unlikely to fall further than $10 - industry

Coal prices in Asia are already at levels that have forced some producers to curb supply and are unlikely to fall more than another $10, industry officials said on Tuesday.

The Asian benchmark Newcastle coal index was at $58.11 a tonne for the week ended June 5, down 10 percent so far this year in a market that has been hit by oversupply and import restrictions in top consumer China.

"There is space for prices to fall further but only marginally, because we are getting very, very close to production costs," said Edwin Tsang, head of marketing at Indonesia's second-biggest coal miner Adaro Energy.

"This year is still a survival game," he said at a coal industry conference in Indonesia, the world's top exporter of the power station fuel.

"We've got more enquiries from Chinese importers but the prices are still depressed. Whether that's going to be sustainable or not we still need a couple of months to see."

Adaro aims to keep its coal production steady this year at 54 to 56 million tonnes, Tsang said.

Other producers like Adimitra Baratama Nusantara, also based in Indonesia, said that prices could soon begin to recover.

"This year we're actually going to see some meaningful supply cuts," Michael Soerijadi, the firm's marketing director, told Reuters.

"I think we're not too far away from a recovery and it looks like now this may be the bottom," he said, adding that it may still take several years for coal prices to rebalance.

He said the market was looking beyond China, hoping to make more sales in places such as South Korea, Taiwan, India and Southeast Asia.

Alex Tonks, managing consultant at mining analyst CRU International, said coal producer margins could not narrow much more.

"It's a question of who can reduce costs faster to get margin and that comes down to macroeconomics as well in terms of whose currency is going to move most, which is a big thing for Indonesia."

The Indonesian rupiah has weakened 7.7 percent against the U.S. dollar this year.

According to Gary Vernon, global head of coal trading at Macquarie Bank, approximately 15 percent of the seaborne thermal coal industry is now losing money on a cash basis.

"One would expect that the price could move $10 lower to finally see some of these supply-side reactions that the market needs to have," he said.

source: http://www.firstpost.com