Coal news and updates

Excess China mine capacity key to seaborne thermal coal market imbalance: GS

Recent production cuts in Australia and South Africa will do little to balance the global seaborne thermal coal market while excess coal mining capacity remains in the far larger Chinese domestic market, analysts at Goldman Sachs said in a research report Thursday.

Citing an 11% rally in Newcastle FOB 6,000 kcal/kg NAR spot thermal coal prices to a peak of $69/mt earlier in the year, the investment bank said producer Glencore's announcement of a three-week shutdown in December followed by a potential 5 million mt cut in South Africa and a planned 15 million mt reduction in Australia had initially provided support to the seaborne market.

However, describing Chinese excess coal mining capacity -- which dwarfs the seaborne market by a ratio of 4 to 1 -- as "the real culprit behind low thermal coal prices," Goldman Sachs said output cuts outside China "can be easily offset by a corresponding decline in Chinese import volumes, and the actions of seaborne producers will be secondary to Chinese domestic market dynamics as long as China is a large importer."

The bank said it expected China's share of seaborne demand to decline from 17% in 2014 to 12% this year and then fall into single digits beyond 2015.

If the Chinese domestic market remains depressed -- the stronger the focus on diversifying the fuel mix and the weaker energy demand is, the longer it will take to absorb excess mining capacity - China may eventually cease to be a significant market for seaborne coal, and the price ceiling currently set by cheap domestic coal would gradually disappear," the report said.

source: http://www.platts.com