Coal news and updates

The prices of a wide range of industrial and agricultural commodities have plunged to their lowest since the global financial crisis. While rising supply in the US and decelerating growth in China have dragged down the price of Brent crude oil from 15 fields in the North Sea from a high of $115 a barrel in June to $92, the dollar climbing to a four-year high due to the strengthening US economy is chipping away at gold and silver prices.

 

Of all commodities, iron ore remains the worst performer. In the longest series of losses since Metal Bulletin started compiling data of price movements of the steel-making ingredient in 2009, the mineral has fallen every quarter since the beginning of this year. The drop in the third quarter for benchmark ore (62 per cent iron content) for delivery at China's Qingdao port was 17 per cent, at $78.05 a tonne. The average price of the mineral stood at $135 a tonne in 2013. The loss in ore is a lot more than the 11 per cent retreat in the Bloomberg Commodities Index of 20 items for the same quarter.

 

GOING DOWNHILL

In the third quarter, benchmark ore for delivery at China's Qingdao port fell 17%

Coal prices are down 65% from $330 a tonne in 2011, owing to floods-related disruptions in Australia

The 9% decline in Chinese ore imports, at 74.88 mt, in August accelerated the fall in the mineral price

Vale, Rio Tinto and BHP Billiton plan to raise ore supply to a billion tonnes in the next few years

Rio Tinto CEO Sam Walsh says by the end of this year, 210 mt of iron ore will be taken off the market

 

Iron ore does not figure in the Bloomberg Index.

 

If the global demand for steel stays flat, metallurgical coal, the other steel ingredient, can't avoid a hit. It isn't surprising that Australian miners agreed to supply coal to Japanese steel mills at $119 a tonne during the last quarter of this year; the price is a dollar less than the contract price for the third quarter. Coal prices are down 65 per cent from a high of $330 a tonne in 2011, owing to floods-related supply disruptions in Australia. That Chinese coal imports fell about 40 per cent in August on a year-on-year basis helped Japanese mills secure a cut in coal prices this quarter. Many will not rule out further downside to coal before, prices start recovering slowly. As the quarterly benchmark price is at a six-year low, miners have already effected a production cut of about 30 million tonnes (mt), about 10 per cent of global seaborne trade in metallurgical coal. To address the adverse market conditions and emerge with minimum damages Major mining groups remain engaged in cutting production at high-cost coal mines.

 

Explaining major retreats by iron ore and coal, Confederation of Indian Industry steel committee chairman Chandra Shekhar Verma says, "China, which had a share of 48.5 per cent in the global crude steel production of 1.607 billion tonnes in 2013, accounts for two-thirds of the global seaborne trade in iron ore. The nine per cent decline in Chinese ore imports, at 74.88 mt, in August accelerated the fall in the mineral price at a time when mines expansion and opening of new mines are underway in Australia, Brazil and Africa. Similarly the cut in coking coal import by China heightened market bearishness. So far, the rapid falls in the prices of the two commodities have not stoked China's import appetite. This is because Chinese steelmakers are beset with falling steel prices, as the manufacturing sector hits a wall and the property market stays sluggish." Low coking coal prices are, however, proving to be major relief for the Indian steel sector, which is becoming increasingly import-dependent for the fuel needed to smelt iron ore. Without captive iron ore mines and sufficient supplies from merchant miners, steelmakers here are importing at attractive rates.

 

Financial Times quoted Anglo American chief executive Mark Cutifani as saying miners had "overbaked the supply pie" during the commodities boom. This is most evident in the case of iron ore. While leading miners Vale, Rio Tinto and BHP Billiton plan to raise supply of ore to about one billion tonnes in the next few years from about 700 mt three years ago, Anglo American has secured a licence from Brazilian authorities to start operating its long delayed $14.5-billion Minas-Rio iron ore project. Supply from Minas-Rio, to begin by the year-end, will increase up to 15 mt next year and to 26.1 mt in 2016. Australian miner Fortescue Metals, which claims to have brought back iron ore to a "more long-term and sustainable pricing" from "unsustainable peaks", as well as a few others, remain engaged in commissioning new capacity. Current ore prices have rendered considerable mining capacity unviable. Rio Tinto chief executive Sam Walsh says by the end of this year, 210 mt of iron ore will be taken off the market.

 

 

Source: http://www.business-standard.com/