Commodities | Dec 10 2008
By Chris Shaw
As oil prices have fallen in recent weeks so too have coal prices. ANZ Bank notes this has particularly been the case given a low number of spot tenders, as buyers are holding on to purchases in the hope of lower prices in the shorter-term.
As the bank’s senior commodity strategist Mark Pervan notes, recent industry reports suggest this situation is not about to change given most Asian buyers have sufficient supplies at present. Japanese utilities are believed to have thermal coal stocks of around 30 days, while South Korean power plant stocks are estimated at around two weeks.
Pervan expects the trend of coal prices being influenced by the oil price to continue. As the bank expects oil prices to fall further in coming months, this suggests we will see further weakness in coal prices as well. Shorter-term, Pervan sees scope for some consolidation given the recent flattening out in the Baltic Freight Index. This implies some improvement in commodity market conditions. However, with the New Year approaching, Pervan expects activity levels to remain subdued.
Support for his weaker outlook for the medium-term comes from reports Japanese utilities may be able to negotiate thermal coal contracts for the next Japanese financial year at prices in the mid-US$70 per tonne range. This is predicated by Newcastle coal prices slipping below US$60 per tonne, which looks possible given the current weak market.
As well, Pervan notes demand is faltering in Europe as well as in Asia, with indications the semi-soft coking market has slowed significantly likely to flow through into thermal coal prices as well. This is particularly so given rising stock levels. If Chinese electricity demand also falls, he sees scope for a significant increase in export supply from that market, which would also weigh on prices.
In terms of actual forecasts, Pervan expects significantly lower prices in the upcoming Japanese financial year. As for thermal coal, he sees prices next year of US$75 per tonne compared to US$155 per tonne this year. For premium hard coking coal he expects US$155 per tonne compared to this year’s US$305.
Lower grade hard coking coal is forecast to fall next year to US$135 per tonne from US$270 now. Pervan is expecting semi-soft coking coal prices to fall from the current US$240 per tonne to US$110 per tonne next year.