Thermal coal prices unlikely to recover in 2013 unless Australia cuts output: sources

Bali (Platts)--5Jun2013/559 am EDT/959 GMT


Global thermal coal prices are unlikely to recover this year unless Australian coal producers lower production or an unexpected event rattles the seaborne market and sends prices north, industry experts attending the Coaltrans Asia conference in Bali, Indonesia, said Wednesday.

An electronic survey conducted during a conference session on Tuesday showed that 50% of the participants do not expect thermal coal prices to recover this year because unrestrained coal production will continue.

Thermal coal prices will go down this year, according to Fabio Gabrielli, Mercuria Energy Trading's director for dry bulk analysis and strategy.

He does not expect any other country, other than the US, to cut production this year. "Until we see Australia cutting, we will not see the bottom [for prices]," Gabrielli said.

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Guillaume Perret, director of London-based Perret Associates, a consultancy specializing in coal, iron ore and steel and freight, said global thermal coal supply remains abundant.

"The market is at the moment at the mercy of any shocks that can trigger [upward] market movement," Perret said. "We expect a very slow price recovery in the coming year," Perret said.

Representatives of two Indonesian coal mining companies told conference delagates on Tuesday that they expect prices to recover next year.

"I don't agree," said Michael Soerjadji, the marketing director of Adimitra Baratama Nusantara, when asked for his opinion on the electronic survey results.

Sreejith Chalakkal, the marketing manager of Bayan Resources, said he expects thermal coal prices to recover next year because coal producers have to react to ease cost pressures.

Gabrielli, however, said he expects coal exporting countries, Australia, Colombia, Indonesia, Russia and South Africa, with the exception of the US, to continue to increase production despite current depressed international steam coal prices.

In 2011 and 2012, there was an annual 100 million mt increase in seaborne thermal coal supply, Gabrielli added. The 2012 coal story was not about weak demand but more about abundant coal supply, he explained.

Coal producers reacted to the 2007-2008 boom in commodity prices by ramping up output, which was absorbed by the emergence in 2009 of Chinese demand for steam coal in the seaborne market and India's appetite for coal, Gabrielli said.

A bull rally in thermal coal prices was seen in 2010 and mid-2011 as devastating floods hit Indonesia, Colombia, South Africa and mainly Australia while the March 2011 earthquake and tsunami in Japan translated to higher coal demand with the shutdown of nuclear reactors in Japan and Germany, he said.

Then a US shale gas revolution which led to a massive shift to gas from coal, a warm winter in 2011 and 2012, an exceptional hydroelectric power performance in China in 2012 and the Chinese government's decision to tighten credit in Q3 2012 led to the current depressed coal prices, Gabrielli said.

--Cecilia Quiambao, cecilia.quiambao@platts.com
--Edited by Geetha Narayanasamy, geetha.narayanasamy@platts.com