27 JUN, 2012, RAMKRISHNA KASHELKAR, ET BUREAU
MUMBAI: The recent fall in international coal prices seems to have run its course. It may stagnate here for a while, but one shouldn't expect the free fall to continue say industry experts.
The spot coal prices globally are down 20-30% from their year ago levels and almost 40% below their peak in early 2011. The benchmark Newcastle, Australia thermal coal is trading around $87 per tonne in June 2012 - a two-year low - as against around $142 per tonne at the beginning of 2011. Similarly, the Indonesian Coal Reference Price is trading around $96.65 in June '12 from a peak of $127 in early 2011.
There has been an oversupply situation globally with producers expanding production and economic slowdown leading to a damp demand. US replacing coal with cheaper natural gas is adding to the glut.
With prolonged economic weakness ahead and the shale gas boom in the US likely to continue in the medium term, the oversupply situation is difficult to change in a hurry. Citigroup's recent industry overview report on Asia-Pacific coal mentioned the weakness to persist well into 2013.
However, that doesn't mean the coal prices would go down further from current levels. James O'connell, senior managing editor, International Coal at Platts, mentioned that further fall in coal prices would gradually make producers cut down on production. "In fact in countries like Indonesia small and medium sized miners are already scaling back output. The coal prices are already near the marginal cost of production for a few of them."
The Citigroup's report too makes a case for the weakness to be cyclical in nature, and noting that the upturn in prices could be well round the corner. "We understand around 10-15% of Japanese contract thermal coal demand is on a July-June year term. Industry sources suggest these could be struck at around $105 per tonne, well above the spot market, and prove a positive surprise," concluded the Citi report.
No comments:
Post a Comment