Plentiful supplies of coal used to generate electricity are poised to cap prices for the fuel near the lowest in five years, even as demand rises heading into the Northern Hemisphere winter.
Power-station coal at the port of Newcastle in Australia, the world’s second-biggest exporter, will be little changed in the three-month period starting Oct. 1, according to UBS AG and Bank of America Corp., even as utilities in Asia buy more toward the end of the year. Prices gained 8.1 percent in the fourth quarter of 2013 and 7.6 percent in the same period of 2012.
Colombia, the world’s fourth-largest shipper, is seeking to boost output to a record in 2014 just as rising production in China, the biggest consumer, limits gains in export prices. The supply glut that’s driven coal to the lowest since 2009 will more than double next year, according to Morgan Stanley.
“The market is well supplied,” Daniel Morgan, an analyst at UBS in Sydney, said by phone on July 22. “November, December is when you typically see a big drive to stock up ahead of winter. At this stage, there is so much supply around that it may not necessarily be a price-driving event, it might just provide some stability.”
The glut is projected to expand to 14.9 million metric tons next year, from 6.8 million in 2014, according to a July 8 report from Morgan Stanley. Global exports are forecast to climb to 989 million in 2015, from 959 million, the bank said.
Coal at Newcastle, the Asian benchmark price, dropped to $67.05 a ton in July, the lowest since September 2009, according to data from IHS McCloskey. It closed at $68.10 during the week ended Aug. 1 and has averaged $74.08 this year.
As much as one fifth of global exports lose money at $72 a ton, according to Morgan Stanley. About 20 million tons a year of production needs to be cut by miners to help re-balance the market, according to UBS. Prices will be little changed in the fourth quarter at $71.50 a ton, the bank estimates.
The market is “plagued by oversupply,” Francisco Blanch, an analyst at Bank of America in New York, said in a report e-mailed on July 11. Bank of America forecasts prices will be little changed at $71 in the fourth quarter while Credit Suisse estimates an average of $75, unchanged from the previous period.
Demand will increase at a modest rate and prices will remain near the level of marginal production costs, Goldman Sachs Group Inc. said in a July 23 note. The bank estimates coal will average $75 a ton this year and $78 in 2015.
Export disruptions because of heavy rain and production cuts may boost prices. Coal surged to $138.50 a ton in January 2011 after flooding curbed output in Australia and Indonesia.
Some miners are starting to reduce supply. Vale SA, based in Rio De Janeiro, Brazil, said in May it will halt output from its Integra mine in Australia. Peabody Energy Corp., the largest U.S. producer, will shut its Wilkie Creek operation in the Australian state of Queensland, it said in December.
“The seaborne coal markets remain oversupplied, but we are seeing some signs of re-balancing,” Gregory H. Boyce, the chief executive officer and chairman of St. Louis-based Peabody, said on a July 22 conference call. In China, “more than 2,000 smaller mines are expected to close by 2015, as the growing amount of Chinese coal production is uneconomic,” he said.
Indonesia, the world’s biggest exporter of thermal coal, is projected to increase shipments by 2 percent to 420 million tons this year, Australia’s Bureau of Resources and Energy Economics said in its June quarterly report. Output from Colombia, Latin America’s largest producer, may climb as much as 12.8 percent in 2014 to a record 97 million, the nation’s deputy mining minister, Cesar Diaz, said July 17.
Colombia is increasing output as companies such as Glencore Plc (GLEN), Drummond Co. and BHP Billiton Ltd. reduce the number of work days lost to strikes, according to Diaz. The nation produced 86 million tons last year.
Shipments from Australia are forecast to rise by 2 million tons this year to 190 million, according to the Bureau of Resources and Energy Economics. Sales are projected to climb 3.7 percent to 197 million in 2015.
As prices slide, officials will meet next week at the Coaltrans conference in Brisbane, Australia, to discuss the industry’s challenges.
Markets are “awash with coal at a time of soft demand,” Mark Pervan, the head of commodity research at Australia & New Zealand Banking Group Ltd. in Melbourne, said in a July 31 note. Australian producers are showing no supply discipline and China keeps increasing output, Pervan said. The bank cut its 2014 price forecast by 3.9 percent to $74 a ton.
The benchmark price for China’s spot power-station coal at the port of Qinhuangdao was at 470-480 yuan ($76-$77) a ton as of Aug. 3, the lowest since September 2007, according to data from China Coal Transport and Distribution Association.
“There is a lot of coal being produced, and a portion of that is being produced at a loss,” Christian Lelong, a Sydney-based commodity analyst at Goldman Sachs, said July 30 by phone. “Even if mines close, the low Chinese price is putting a cap on the seaborne market and it doesn’t show signs of improving anytime soon.”
To contact the editors responsible for this story: Pratish Narayanan at email@example.com Alexander Kwiatkowski