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Coal prices to rebound by $5-20 by mid-yr: McCloskey

Spot prices for both steam and coking coal are all set to stage a rebound in the international markets, gaining $5-20 per ton from their current low levels, as the market looks poised to restore a demand-supply balance by the middle of 2016, said Gerard McCloskey, a leading expert on coal and the founder of the McCloskey Group.

“I would have thought that by mid-year, coking coal prices could be $10-20 higher and steam coal prices have the potential to go up by $5-$10 from the current low base,” McCloskey told ICMW over phone.

The recovery in coking coal prices, he said, would precede a rebound in steam coal prices as the vanishing supply from a number of countries would help the coking coal market strike a balance faster.

“I think the situation in coking coal is coming quickly into a balance,” he said.

Elaborating further, McCloskey said, “The US is in fast retreat in its (coking coal) volumes. Two years ago, ie, 2014, the US exported about 63 million tons (mt); last year it was 43 mt; and the forecast I have for this year is 20 mt. This is (the share of the US) in total world export volume of about 300 mt. So you got a big retreat there. You also got a big retreat by the Canadians though their volume was small at about 35 mt and they are going to close by 10-15 mt less from now and it’s the same for the Australians. So demand and supply should be in balance or will be coming into balance.”

On the supply side, however, the closure of Tata Steel’s UK operations may lead to a drop in demand for met coal to some extent. In China, while the steel works are being closed, so are the mines, resulting in a balance which is “difficult to read”, he said.

As for steam coal, McCloskey said, “A lot of Indonesian coal is going to disappear and a lot of US coal has (already) disappeared and for me that’s more complicated to read because European demand is down and Chinese demand is down and I am not quite sure whether the markets are close to a balance.”

Commenting on Indian demand, he said, “The problems in India is with the electricity distribution companies. The electricity demand is poor as distribution companies have got no money and those sorts of things… but I think the steam coal market is less bad than it was.”

Overall, “the prospects for coking coal are better in the near term compared to steam coal which is looking slightly less balanced,” he concluded.