Coal news and updates

Thermal coal levels unlikely to improve in Q3, Q4

Jury seems to be out in even before the trial in thermal coal market. Supply remaining aplenty has evened out any bubbles in built up to winter re-stocking. Despite improved buying by Europe the surge in supply supplemented by fall back on renewable sources of energy has diluted built up.

Excess supply from US, Russia and Poland is lurking to inundate the European market in case of price appreciation. However the risk of significant downside is also limited. DES ARA price have held in band of $70 to 75 per tonne in Q2. A little recently owing to Drummond mines strike is unlikely to sustain as the resolution is round the corner.

Over the coming three months, DES ARA prices could see sustained up¬ward momentum due to restocking for the European winter, however, any gains would be limited by the emergence of previously uneconomical tonnes from the US and elsewhere once prices reach a level that covers production costs. According to an estimate if price moves above USD 90 per tonne DES ARA then US exports will increase as idled mines are brought back into operation, which will bring ad¬ditional tonnes,

One important factor is the ability of producers to survive at current price levels. Producers that are surviving now will likely hold off making significant production cuts for the next quarter, in the hope of prices rising to more com¬fortable levels.

On the flipside price below a threshold level doesn’t mean that production cuts will ensue immediately as there is significant hedged volumes (estimated 20 million tonnes) and cost of restarting production itself might be prohibitive.

Whereas, if prices decline further and remain unchanged into 2014, then aggressive cuts are inevitable or once the hedged material runs out, it will limit the opportunities for suppliers to offer discounted cargoes into Europe.

Hence for now the market is at cross roads and is unlikely to alter radically lest the dynamics goes into a self-corrective mechanism

Source: Strategic Research Institute/CoalGuru