https://www.miningweekly.com

Light at the end of tunnel for met coal market in six months – analyst

Light at the end of tunnel for met coal market in six months – analyst

Photo by Reuters

22nd September 2015

By: Henry Lazenby

Creamer Media Deputy Editor: North America

  

Font size: - +

TORONTO (miningweekly.com) – The metallurgical (met) coal market could potentially look forward to the start of a recovery phase in about six months time, when some of the production cuts should start to come through in the market and customer stockpiles become depleted, mining and commodity veteran Neil Bristow tells Mining Weekly Online.

“My anticipation is that over the next six months we will see slightly reduced volumes out of Canada and Australia. I think we’ll see a situation where many of the parties are probably going to do a bit of restocking, because inventories are quite low in the met coal market. So we should [probably] start to see some improvement late in the first quarter of 2016,” the consultant with H&W Worldwide Consulting said.

According to Bristow, when one considered the demand side, it was really a question of how strong China was going to come back to the market and also how strongly Indian demand was going to grow.

Bristow stressed that the importance of Chinese demand could not be overstated. The flexibility of a country such as China in one year could move the market from oversupply to very tight in about three to four months.

“India is looking pretty good, but even rising demand from India won’t compensate for a weakening Chinese economy. If China were to hypothetically start to import over the next five to six months, one would see a tightening of the market, with a corresponding increase in the price. If China does not increase imports, the market recovery will take longer,” he pointed out.

When demand returned, the question would be how quickly shuttered production could come back on line. With all the cost cutting that had been implemented, a lot of prestripping was delayed and although there would be additional volumes if the market warranted it, it would take some time for it to come back on line.

SORRY STATE
“I’ll be blunt with you – the current outlook for met coal is pretty bleak,” Bristow advised.

There were several factors that had caused this. One of the factors had been the decline in imports of met coal into China, the world’s largest buyer. At the end of last year, Chinese steel mills started buying more volume from the domestic met coal market in China, which started to hit import volumes and had continued to do so to date.

“We’ve had a couple of bounces in the last month in terms of Chinese imports, but being one of the key drivers of the seaborne market, China has been importing significantly less,” Bristow explained.

The weaker macro economic picture also had its part to play in the decline of the met coal industry. It had generally hurt steel output, which resulted in weaker met coal demand. Bristow noted that China was still shipping significant volumes of Chinese steel, made from Chinese coke, which was impacting the international seaborne market.

MARKET GLUT
Meanwhile, stronger production volumes from Australia, the world’s leading met coal producer, mainly owing to the ending of long-running strikes at the world’s largest miner BHP Billiton, improvements in productivity and costs cuts, had given rise to a situation where global demand had shrunk, while output increased.

He said despite some companies going bust, filing for Chapter 11 reorganisations, and despite several mines being closed or idled, the market had not yet seen a balanced supply/demand position emerge.

“It’s simply put, an oversupplied market. Going forward, there is a pretty gory scenario for the coal industry. Prices have also followed downward with the over-supplied market and the lack of Chinese buyers, which has seen premium coal down to about $82/t,” Bristow noted.

From the perspective of major suppliers Australia and Canada (global number-three producer), currency devaluations against the US dollar had benefited suppliers, in many cases keeping them alive, despite being on poorer margins.

The Australian dollar had declined to about A$0.70 to the US dollar, when it was at parity not so long ago. “It clearly helped the profitability of these operators, and was boosted by productivity gains – where fewer employees produce more coal – and lower overheads, because they’ve cut into corporate expenses, resulting in significant cost reductions.”

This was mimicked to some degree by Canada, where the currency had also fallen to a low of about C$0.73 to the US dollar, benefiting major players such as Teck Resources, which had also improved productivity.

“This allowed Teck to keep its head above water, whereas smaller players, such as Anglo American’s Peace River operations and the operations of Walter Energy, had been idled,” Bristow stated.

Edited by Tracy Hancock
Creamer Media Contributing Editor

Comments

Showroom

Hanna Instruments Image
Hanna Instruments (Pty) Ltd

We supply customers with practical affordable solutions for their testing needs. Our products include benchtop, portable, in-line process control...

VISIT SHOWROOM 
Showroom image
Alcohol Breathalysers

Supplier & Distributor of the Widest Range of Accurate & Easy-to-Use Alcohol Breathalysers

VISIT SHOWROOM 

Latest Multimedia

sponsored by

Hyphen, Eva mine, ferrochrome price make headlines
Hyphen, Eva mine, ferrochrome price make headlines
27th March 2024
Resources Watch
Resources Watch
27th March 2024

Option 1 (equivalent of R125 a month):

Receive a weekly copy of Creamer Media's Engineering News & Mining Weekly magazine
(print copy for those in South Africa and e-magazine for those outside of South Africa)
Receive daily email newsletters
Access to full search results
Access archive of magazine back copies
Access to Projects in Progress
Access to ONE Research Report of your choice in PDF format

Option 2 (equivalent of R375 a month):

All benefits from Option 1
PLUS
Access to Creamer Media's Research Channel Africa for ALL Research Reports, in PDF format, on various industrial and mining sectors including Electricity; Water; Energy Transition; Hydrogen; Roads, Rail and Ports; Coal; Gold; Platinum; Battery Metals; etc.

Already a subscriber?

Forgotten your password?

MAGAZINE & ONLINE

SUBSCRIBE

RESEARCH CHANNEL AFRICA

SUBSCRIBE

CORPORATE PACKAGES

CLICK FOR A QUOTATION







sq:0.141 0.178s - 90pq - 2rq
Subscribe Now