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Global coking coal price forecast (February 2013)


Quarterly agreements between coal suppliers and consumers, along with large share of such contracts against spot market demand, traditionally affect the global market for coking coal, slowing it down or pushing it forward in regards to other metallurgy markets (depending on price dynamics).

In early 2013, spot market deals dropped to their minimum on low demand from Asian buyers (mainly, China) and due to availability of the material at lower contract prices: hard coking coal was quoted at more than $175/t FOB Australia in February, against Q1 contract prices at $165/t.

At the moment, market researchers have different opinions on further development of the coal market (as well as raw material and steel product markets in general). Metal Expert Consulting offers its own vision of coking coal market until 2015, comparing it with consensus forecast of investment companies and analiticians.

Metal Expert Consulting applies a coking coal price forecast methodology based on mixed forecasting methods, including non-linear dynamics, global coal demand/supply models, assessment of costs of key suppliers. For more details on Metal Expert Consulting forecasting methods, as well as on investment forecasts for raw materials, see January report Global iron ore price forecast.

Several forecasts of coking coal price change prepared after the beginning of 2013 are provided below.

Global coking coal price forecasts by industrial and financial analiticians, $/t

Source

Forecast basis

Date of update

2012

Q1

Q2

Q3

Q4

2013

2014

2015

Long-term

2013

Goldman Sachs

Hard coking coal - Australia, FOB

Jan ‘13

191

n/a

n/a

n/a

n/a

178

195

205

n/a

ABN AMRO

China Iron Ore Fines

Jan ‘13

190

166

n/a

n/a

n/a

173

165

160

n/a

Deutsche Bank

Contract Hard Coking Coal

Jan ‘13

210

n/a

n/a

n/a

n/a

178

185

180

n/a

Citigroup Inc.

Hard Coking Coal (benchmark Asia)

Feb ‘13

211

165

170

180

180

174

213

213

200

Macquarie Bank

Hard coking coal - Australia, FOB

Jan ‘13

210

165

165

185

185

185

206

215

155

Credit Suisse

Hard coking coal, contract prices, FOB Australia

Jan ‘13

210

165

170

175

175

171

183

190

170

CBA

Hard coking coal - Australia, FOB

Jan ‘13

190

n/a

n/a

n/a

n/a

183

170

192

172

Merill Lynch

Hard coking coal - Australia, FOB

Jan ‘13

193

175

180

185

190

183

190

n/a

n/a

ANZ

Coking coal - Hard

Jan ‘13

190

155

165

175

185

170

175

170

n/a

Consensus forecast

Hard coking coal (FOB Australia)

199

165

170

180

183

177

187

191

174

Forecast, max

Hard coking coal (FOB Australia)

199

175

180

185

190

185

213

215

200

Forecast, min

Hard coking coal (FOB Australia)

199

155

165

175

175

170

165

160

155

The diagram below presents a comparison of Metal Expert Consulting forecast of export prices for Australian hard coking coal and price expectations of investment and industry analyticians adjusted to this basis. For reference, the divergence of 2012 actual price data ($193/t Metal Expert Consulting against $199/t consensus) is due to the fact that Metal Expert Consulting applies yearly average spot prices, whereas some industrial analiticians use prices of quarterly contracts. If spot prices plummet as they did in August-September last year, quarterly prices decrease at a lower pace, which causes the divergence.

Metal Expert Consulting’s quarterly forecast for 2013 is based on our know-how methodologies and non-linear dynamics methods. We expect that coking coal prices will continue to grow in Q2-Q3 for a number of reasons. First of all, global market for finished products is expected to get stronger (against H2 2012), so consumers will scale up their coal purchases to meet the growing demand and replenish their stocks.

Besides, over the past six months, export prices for Australian coking coal have seen a less significant drop than prices for other steel products, Chinese domestic coking coal prices, or global steam coal prices. This, in our opinion, is another evidence of the current “underestimation” of coking coal benchmark and a major potential for price increase as demand recovers.

Metal Expert Consulting’s medium-term price forecast for coking coal is generally in line with consensus forecast of investment companies. We consider the scenario providing for a 3-4% yearly growth of global steel production in 2013-2015 (in particular, a slow-down of economic growth and steel consumption in China) the baseline scenario of global economy and global steel market development. Therefore, an annual increase by 35-45 mt in coking coal consumption is expected. On the other hand, there are over 40 projects announced for the next 3 years with the total capacity of 130 mtpy; most of these new projects are supported by Asian (mainly Chinese) investments, which gives them a high probability of implementation. Thus, the potential annual increase of coking coal production in 2013-2015 is slightly higher than expected growth of consumption. That is why we expect a moderate decline of yearly coking coal prices in medium-term perspective.

New suppliers with lower production costs (against average market level) and tougher competition in the global market for coking coal will push down profitability of leading suppliers and ensure yearly prices decrease in long-term perspective. Nevertheless, taking into account the current expenses for coal production and transportation, as well as growing coal production cost in the next 10 years by inflation rate at the lowest, Metal Expert Consulting estimates the fair price for coal, clear from speculation, at $175-180/t.

Source: Metal Expert Consulting

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