Coal Prices to Stay Low Until China Inventories Fall

Global coal prices have little upside until China’s stockpiles of the fuel begin to ease in the second half of 2013, according to IHS McCloskey.

The world’s largest consumer and producer of coal created a glut as its economy slowed while more production began in the Asia-Pacific region and as China imported more than needed, James Stevenson, a researcher at the Petersfield, England-based data provider, said at the Coal Trading Conference in New York.

“They’re awash with coal,” Stevenson said. “We’re seeing China’s growth slowing. China’s oversupply will reverberate around the world in the second half. That’s tanked international prices.”

Growth was 7.4 percent in the three months through September, down from 9.1 percent a year earlier, according to data from the National Bureau of Statistics of China.

The median estimate for China’s 2012 growth in Bloomberg’s November survey of economists was 7.7 percent, down from 8 percent in August, while the pace for next year will pick up to 8.1 percent, compared with August’s median of 8.4 percent. The economy expanded at an annual average pace of 10.6 percent in the decade through 2011.

China’s benchmark price for spot coal with an energy value of 5,500 kilocalories per kilogram dropped to a range of 625 yuan ($100) to 640 yuan a metric ton as of yesterday, down 0.4 percent on average from a week earlier, according to data today from the China Coal Transport and Distribution Association.

Stevenson said prices may rebound during the winter of 2013 and 2014 and as global production cuts take hold.

“I don’t think the market gets tight, though,” he said. “It makes the market more prone to supply shocks.”

(Corrects to include inventories in headline and first paragraph.)
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