BofA Cuts Newcastle Coal Forecast as European Prices Set to Fall

Bank of America Corp. cut its forecast for Newcastle thermal coal prices this year and said it expects the fuel to extend declines in Europe this year.

The bank reduced its estimate for coal exported from the Australian port by 12 percent to $74 a metric ton in the fourth quarter and said prices will average $82 in 2014, 9.9 percent below its previous forecast, Sabine Schels, an analyst at the bank in London, said in the report dated today. European coal for 2014 will fall to $79 a ton by the end of this year, according to the bank, 5.8 percent less than today’s price.

Workers at Drummond Co. last week accepted a pay offer after more than six weeks of strike, indicating Colombia’s second-largest coal producer may restart output. Exports from the South American nation will probably rebound while Chinese support of its domestic coal industry means it’s unlikely to buy excess seaborne cargoes and a weakening of India’s currency potentially reduces its appetite for coal imports, according to Bank of America.

“Mine ramp-ups, weaker producer currencies and a contango market structure suggest countries like Australia will remain slow at curtailing output,” Schels said, referring to a market where near-term prices are lower than later-dated contracts. “More than 20 percent of seaborne coal producers are not covering cash costs at current 2014 Newcastle coal prices.”

Coal for 2014 delivery in the Amsterdam-Rotterdam-Antwerp region, the European benchmark, has plummeted 18 percent this year. The contract fell as much as 0.4 percent today to $83.55 a ton, according to broker data compiled by Bloomberg.

Bloomberg tracks broker data from ICAP Plc, GFI Group Inc., Marex Spectron Group Ltd., Credit Suisse Group AG, IHS McCloskey, Tradition Financial Services and Tullett Prebon Plc.

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