Commodities | Oct 09 2008
By Andrew Nelson
We’ve all been talking about the long term positive prospects for coal prices, even as they continued to fall over the past three months, but all good stories – even if it’s one of the last good ones you’ve got - must come to an end. Analysts at ANZ are predicting coal prices will continue to ease, with falling oil prices, a firmer USD and slowing demand leading the way lower.
The analysts note that tumbling freight rates confirm their view of weakening demand, with what are now much lower levels unable to spark much if any buying interest in regional spot markets. While ever increasing financial uncertainty the world round was definitely a culprit, the analysts note that a shortened week in key market hubs such as Indonesia, China, India and South Korea also kept volumes light.
ANZ points out a key to the issue of slowing demand is the delay in the second batch of 2008 Chinese export coal quotas, with traders now unable to ship out any spot cargoes due to there being no end in sight in for increasing shipping queues. This has created a large stockpile of export tonnage that could well flood the market once new quotas are announced. The analysts think that could be sometime this week.
It doesn’t take a rocket scientist to figure out that a flood of supply into a softening market isn’t good for prices.
But the short term picture isn’t the only one that’s softening, as ANZ expects prices will continue to ease over the months ahead, declining in-line with its oil forecasts.
ANZ sees oil prices over the coming months continuing to be very unstable, with sentiment weakening by the minute as the demand backdrop looks more and more shaky. The analysts point out that the US financial fallout has sparked some serious concerns about any type of US growth and this will have a huge effect on oil, as the US is by far the largest end-user in the market.
All of this points to a definite swing in sentiment to the negative for coal and is evidenced by increasing signs of slower demand in Europe, and as mentioned above, in Asia. Ongoing infrastructure constraints in Australia are certainly not helping, while the expectation of decreasing demand from Asia, as their economies slow in-line with the rest of the world, paints a picture of continuing weakness in prices.
The analysts do point to a very slim silver lining, saying all of these factors coming to a head at once may well establish a floor for prices going forward.