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Supply cuts may help stabilize thermal coal prices in 2016: Citi

Thermal coal prices are expected to be pressured in the fourth quarter as Chinese imports slow, but a supply discipline may help prices stabilize in 2016, Citibank analysts said Wednesday.

The analysts see Newcastle 6,300 kcal/kg GAR coal price at $59/mt FOB for the third quarter and at about $56/mt FOB for the fourth quarter.

For 2016, the analysts forecast the price to be $60/mt FOB, similar to their expectations for the current full year.

Platts assessed the 90-day price of Newcastle 6,300 kcal/kg GAR coal at $55.25/mt FOB Tuesday, down about 13% so far this year.

The average price of this grade for the second quarter stood at $59.03/mt FOB, according to Platts data.

Global exports are expected to be about 844 million mt in 2015, down from 890 million mt in 2014, the analysts noted.

"We expect prices to generally move lower in Q4, but for prices to stabilize in 2016 as supply remains under pressure, while Chinese import declines slow and ASEAN and Indian demand growth continue," the analysts said in a research note.

The analysts expect 2015 Indonesian thermal coal exports to be at 283.1 million mt, down about 7% from last year.

For 2016 and 2017, exports are expected to decline to 274.6 million mt for both years.

"Weaker demand for [Indonesian] low rank coal acted as an additional catalyst for price induced cutbacks," the analysts said.

For Australia, the analysts expect 2015 exports to reach 203.9 million mt, up from 201 million mt for 2014.

They forecast Australian exports to touch 214.1 million mt in 2016 and 221.3 million mt in 2017.

While Chinese imports for 2015 are expected to be at 115.2 million mt, a slump of about 30% from 2014, Indian imports for the current year are expected to rise 10% to 173.8 million mt from 2014, the analysts said.

"[Chinese] imports should improve in Q4 due both to seasonality and somewhat better industrial activity," the analysts said. "However, upside is limited and yuan depreciation boosts domestic competitiveness."

In August, Beijing devalued the yuan by 2% and loosened its peg to the dollar, impacting purchasing power of Chinese buyers of imported thermal coal. For 2016, Chinese imports are expected to drop to 95.3 million mt while Indian imports are seen rising to 184.6 million mt, the analysts noted.

source: http://www.platts.com