Ex-Noble Trader Banga Ventures Into Coal Calling Bottom

Thermal coal prices have almost reached a low point after declining for three straight years, according to Harry Banga, whose family-owned company Caravel Group Ltd. is poised to start trading the commodity.

Prices for the fuel used by thermal power stations will move in a 5 percent band until there’s more clarity on demand from China, the world’s biggest coal consumer and producer, said Banga, the former vice chairman of Noble Group Ltd. Caravel, based in Hong Kong, plans to trade 3 million metric tons of coal in the first year, he said.

“I think we’re almost at the bottom” for prices, Banga said in an interview in Hong Kong. “I don’t think any country in the region is going to move away completely from coal at least in our generation.”

China faces a challenge in cutting its reliance on coal for energy, as President Xi Jinping vows to clear the hazardous smog that blankets many of the nation’s cities. Prices breached a four-year-low this month because of mounting concern about oversupply and waning Chinese demand.

Thermal coal at Australia’s Newcastle port, an Asian benchmark, fell 2.9 percent to $72.98 a ton in the week ended March 14, the lowest since October 2009, according to globalCOAL, a London-based data provider. It rose 2.9 percent to $75.10 for the week ended March 21.

Supply of power-station coal will exceed demand by 42 million tons this year, or 4 percent of global trade, UBS AG said in a January report.

“With any reduction in prices from here, a lot of coal mining will have to shut down because you can’t sustain these prices,” Banga said.

Started With Sons

Banga left his role as vice Chairman emeritus at Noble in January 2013 after stepping down from his post as vice chairman at Asia’s largest commodity trader in 2010. He started Caravel with his sons Angad and Guneet.

Caravel will also start trading coking coal and other steel-making products over the next 18 months, adding to its iron ore business, which started last year. Banga forecast in November iron ore would drop to $95 to $110 a ton when the steel feedstock was trading at $135 a ton at the Chinese port of Tianjin.

Iron ore, which traded yesterday at $110.50 a ton, entered a bear market on March 7, pressured by both miners boosting global supply and concerns that a possible slowdown in China may curb demand. The commodity will trade in a $10-to-$15 range over the next three to four months until there is a clear sense of the new supply coming on stream, Banga said last week.

“Iron ore still has room to go down,” he said. “Whichever way you look at it, it’s definitely not heading north.”

Coal Limit

China is aiming to cap the fuel’s use as an energy source at 65 percent this year, and the government will limit the burning of coal with high levels of sulfur and ash, according to a plan released earlier this year. The country’s coal imports may fall this year after a record 330 million tons in 2013, the China Coal Transport and Distribution Association estimated in December.

Power shortages in India are also fueling the 700 million-ton annual coal trade in Asia-Pacific, Banga said. Coal India Ltd., the world’s largest producer, estimates on its website that the nation faces a supply deficit of 350 million tons by 2016-2017.

“We expect demand from India will overtake China’s imports, if not this year then certainly next year,” Anuraag Bhatnagar, managing director at Caravel, said in an interview alongside Banga. “Although the growth is moderating for seaborne trade, it will continue to grow in the foreseeable future.”

Before it's here, it's on the Bloomberg Terminal.