TORONTO (miningweekly.com) – Fitch group research firm BMI has raised its thermal coal price forecasts on the back of a more aggressive contraction in global mine output than initially expected, mainly in China.
The firm now forecast Newcastle coal to average $53/t in 2016, up from $51/t, and $57/t in 2017, up from a previous forecast of $52/t.
According to BMI, coal prices would continue forming a base over 2016. For instance, Newcastle coal prices had averaged $51/t so far this year and analysts predicted an average of $55/t over the remainder of the year, compared with the June 22 price of $56.1/t.
BMI expected the temporary boost to Chinese import demand from a stimulus-led uptick in economic activity to fade in the second half of the year and to prevent a more substantial rebound in prices than had already been seen since the February low of $47.6/t.
In the long term, BMI had raised its average price forecasts for 2016 and 2017 to $53/t from $51/t, and to $57/t from $52/t, respectively. The key reason behind the upward revision was a more aggressive cutback in global supply than previously expected, which would drive a rebalancing of the market in 2016 and put a floor under prices, BMI advised.
Supply cuts were expected to be most aggressive in China and the US and severe output declines would prevent the ramp-up in coal exports from these countries that would otherwise have resulted from weak domestic demand.
India and South East Asia would be the demand bright spots. In India, a large pipeline of coal-fired power plants would see the country's imports remain vigorous, on top of aggressive domestic coal production growth. BMI expected a surge in coal demand for domestic power plants in Indonesia, which meant that coal exports from the country had already peaked.
BMI noted that despite market expectations for prices having turned more positive in recent months, its upward revision placed it above consensus for 2016/2017, as gauged by Bloomberg.
Meanwhile, BMI reported Monday that it maintained its refined nickel price forecast at $9 000/t in 2016, as sustained global deficits and declining inventories were expected to support a modest price recovery up to 2020.
Over the next three-to-six months, refined nickel prices were forecast to remain under pressure on a three-month horizon, trading in a range of $8 000/t to $9 000/t.
BMI stated that, despite most metals enjoying substantial price rallies in the first quarter, mainly owing to speculation on the Chinese market and government housing stimulus boosting the steel sector, nickel prices only enjoyed a slight uptick and were left out of most of the speculative rally.
While the market was expected to gradually start to tighten as higher Chinese imports started eroding global stockpiles, investor sentiment towards industrial metals would remain cautious as Chinese economic data would continue to disappoint, the analyst advised.
By the second half of the year, BMI expected strengthening fundamentals in the nickel market and a more general bounce in metal prices to start pushing nickel prices towards $10 000/t.
Over the long term, BMI advised that it maintained its nickel price forecasts to 2020, as the outlook on global supply trends remained unchanged, including the analyst’s view that the partial relaxation of Indonesia's ore export ban, and Indonesian nickel pig iron smelters coming online by 2017, would prevent a supply crunch in the refined nickel market.
BMI forecast an average of $9 000/t and $10 500/t in 2016 and 2017, edging up to $11 500/t by 2019.