European thermal coal fell to the lowest in almost five years as Bank of America Corp. cut its price forecast for the fuel in Australia, the world’s second-biggest exporter.
Coal for delivery to Europe next year fell 0.6 percent to $77.50 a metric ton, the lowest since Sept. 8, 2009, according to broker data compiled by Bloomberg. BofA lowered its third-quarter price outlook for Newcastle coal by 2.7 percent to $70 a ton and cut its fourth-quarter forecast by 5.3 percent to $71, it said in a report e-mailed today.
The European contract has fallen for nine quarters, the longest losing streak since Bloomberg began compiling data. The warmer-than-usual winter in Europe and weak demand from Asia have kept coal inventories at high levels, Francisco Blanch, an analyst at the bank, said in a report e-mailed today.
“Thermal coal markets around the world remain plagued by oversupply,” New York-based Blanch said in the report. “The only producers to curb output in response to the low price environment have been U.S.-based.”
BofA introduced its forecast for 2015 coal at Newcastle of $73 a ton, for 2016 at $82 a ton and for 2017 at $89. Spot coal at the port dropped 0.3 percent to $70.15 a ton on July 4, according to weekly price data from McCloskey.
Australian miners increased exports by about 50 percent to 31 million tons in May from 22 million tons in the same month in 2007, according to data from the Australian Bureau of Statistics. Producers are forced to ship coal from mines as they have so-called take-or-pay contracts with rail companies that mean they must pay for transport even if they do not use it, according to Blanch.
“This makes the transport cost largely a fixed component, which causes miners to increase output to minimize their losses,” Blanch said. “At current calendar 2015 coal price levels of $73 a ton we estimate that 20 percent of global producers do not cover cash costs, let alone their fixed costs.”
The global coal glut may shrink from 2016 as demand from India grows, and the country’s increase in consumption may require a resumption of U.S. production and exports, according to Blanch.
“Since all new mine expansions have pretty much been postponed indefinitely after a three-and-a-half year bear market, the thermal coal market could move into a deficit after 2017,” he said.