Coal news and updates

Global thermal coal prices will remain at low levels until 2016, with oversupply continuing to plague the market until producers curb output further, analysts said on Friday.

 

Coal prices in Europe and Asia have lost more than half their value since spring 2011. A mild winter in Europe and weak demand for coal-fired electricity generation in Asia have kept inventories at high levels.

 

European physical coal for September delivery was trading at $72.65 a tonne on Friday, near five-year lows.

 

Australian coal prices have also fallen below $70 a tonne, close to five-year lows, as record output in the first quarter of this year coincided with slowing import needs from China, the world's biggest coal buyer.

 

"Looking past 2015, we see a more balanced seaborne coal market. Prices should then recover to $82 and $89 a tonne in 2016 and 2017 respectively," Bank of America Merrill Lynch analysts said in a report on Friday.

 

Oversupply could even turn into a shortfall after 2017 because many mine expansions have been postponed indefinitely after three and a half years of a bearish market, the analysts added.

 

SUPPLY, DEMAND

 

Separately, Morgan Stanley has said that low coal prices are forcing many producers to operate at a loss and that more mines will have to cut production or close before prices recover significantly.

 

Production reductions, however, have been limited so far, with only United States-based producers curbing output, Bank of America Merrill Lynch said.

 

When the global coal market starts to rebalance in 2016, U.S. exports will be needed to fill gaps in supply, though demand will have to rise significantly to prompt any meaningful recovery in prices.

 

That demand might come from India, where domestic production has lagged behind consumption for many years because of bureaucracy, operational problems, lack of infrastructure and heavily regulated coal prices, the analysts said.

 

Imports have met 70 percent of India's coal demand growth from 2009 to 2013.

 

"With India's domestic coal production plagued by numerous problems, it is likely that seaborne coal imports will stay at healthy levels as long as prices remain below $100 a tonne," Bank of America Merrill Lynch said.

 

Chinese consumption could also improve in 2015 or 2016, with domestic coal demand for power generation expected to rise by more than 150 million tonnes to 2017, even if the share of coal in power generation falls.

 

By contrast, Europe and U.S. demand for coal is expected to continue its decline until 2030. In Europe, a mild winter, rising renewables generation and robust supply of liquefied natural gas (LNG) has pushed gas prices to record lows, making it more profitable than burning coal.

 

 

Source: Reuters