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China thermal coal import demand to fall sharply from 2016: Goldman Sachs

Chinese demand for seaborne-traded thermal coal will fall sharply from 2016, dragging prices down in its wake, analysts at Goldman Sachs said last week.

The bank’s analysts downgraded their forecast for spot Newcastle 6,000 kcal/kg NAR prices by 17% to $54/t FOB for 2016, and by 21% to $52/t for 2017.

The bank’s analysts expect flat demand and negligible supply growth in the global thermal coal market over 2016-2019, according to its demand and supply model, with the size of the global market staying at around 5.9 billion tonnes per year, down 1% from 6 billion tonnes in 2014.

“We believe the seaborne market has gone ex-growth and coal prices will trade near the level of marginal production costs for the foreseeable future,” the analysts said in the report.

The analysts said they also believed the international coal industry did not require any fresh investment as its existing assets were able to satisfy the market’s flat demand for the next several years.

The bank estimated Chinese import demand for this year at 81 million tonnes, down from 131 million tonnes in 2014, and Chinese imports of thermal coal are expected to decline further to 55 million tonnes for 2016, the report said.

China had over-invested in its coal mining sector, and addressing the industry’s “chronic overcapacity” was complicated by the current contraction in fuel demand that the analysts expect to continue as energy is used more efficiently in the Chinese economy.

The bank’s analysts also said they believed the seaborne and domestic markets for China are diverging after being closely linked by virtue of the arbitrage between imported and domestic prices.

“We expect Chinese demand will account for 6% of the seaborne market next year, down from a 2013 peak of 17%,” they said. “In our view, this could lead to a modest divergence in prices.”

source: http://en.sxcoal.com