Global coking coal price forecast (July 2013)
Metal Expert Consulting continues to publish open quarterly reports to show its own understanding of the coking coal market development until 2015 and compare it with the consensus forecast of investment companies and analysts.
Like most of raw materials and steel products, coking coal was falling in price worldwide during the past three months. HCC spot prices came to $140/t FOB Australia in June, to slide to $133/t in early July despite the fact Q3 contracts between Australian sellers and Japanese buyers were signed at $147/t.
The main reason behind the global price decline is slackening demand from Chinese and Japanese consumers.
China’s economy has slowed down noticeably in the recent months, causing the rise in metallurgical production (including coke) to stop in May-June. Even though coking coal consumption added 7% in China in H1 (237 mt of coke was produced over six months against 220 mt in the same period a year ago), mainly import material was used to meet the demand growth: coal production in the country dropped 4% year-on-year, whereas purchases in the external market went up by 1.5 times to 36 mt in H1 2013. Chinese consumers’ coal stocks are healthy now, Metal Expert Consulting estimates.
No support comes to global coking coal prices from Japan either: pig iron and steel production in the country hardly changed year-on-year in H1, but imports grew by 8% resulting in too heavy stocks.
Seeing the above factors are influential, the leading investment banks and industry analysts keep revising their short- and medium-term price forecasts for coking coal (as well as other raw materials and steel products) downwards.
See below for the consensus forecast of coking coal price changes in the short- and medium-term outlooks that Metal Expert Consulting has made based on 24 reports by industry and investment analysts. To get the forecasts, we have adjusted all the available prices to a common benchmark basis – the FOB Australia price for hard coking coal. The forecasts for April-July have been used. As an exception, we have also considered some forecasts produced by investment banks for earlier periods (the reason is their high degree of accuracy, as the results of Q1-Q2 show).
Experts’ forecasts from the reports and research works carried out by the following companies have been taken into account (in alphabetic order): ABARE, ABN AMRO, ANZ, CIMB Group, Citigroup Inc., Commonwealth Bank, Credit Suisse, Deloitte Access Economics, Deutsche Bank, Goldman Sachs, Investec, KPMG, Liberium Capital, Macquarie Bank, Merill Lynch, National Australia Bank, Numis, RBC Capital Markets, Renaissance Capital, Standart Bank, UBS, VTB Capital, Westpac, Wilson HTM. We have added 13 companies to the range to prepare our consensus forecast (as compared with the April report).
Some two thirds of the above mentioned companies provide no long-term forecasts about coking coal prices, therefore the consensus forecast, the maximum and minimum forecasts for the period have been prepared based on seven indicators.
The minimum coal price forecast is offered by ABN AMRO, and its July report says the material supply is expected to outstrip demand in the coming three years. The most optimistic forecast is the one made by CIMB Group’s and Wilson HTM’s analysts.
Global coking coal forecasts by industry and financial companies, $/t
Metal Expert Consulting’s methodology of forecasting global coking coal prices is based on mixed forecasting methods and includes models of non-linear dynamics, demand and supply balance of the global coal market, estimate of key suppliers’ costs. 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.
The use of our own forecasting methods showed results in Q1. The actual coal price was $168/t, which is only $5/t different from the level we suggested in the forecast published at the beginning of 2013 (investment companies’ forecast is $3/t different from the fact). When a consensus forecast of independent industry analysts was prepared at the beginning of the year, only the then latest, January reports of investment banks were used.
In our April report we stressed the model based on non-linear dynamics methods proved largely unstable due to high volatility of actual coking coal prices in January-March, and so two price development scenarios were suggested: a basic one saying coal prices would stay high ($195-205/t) almost until the end of the year and an alternative one illustrating a coal price decrease to $150-160/t in Q2-Q3.
Comparison of actual coal prices in the global market in Q2 with those predicted by Metal Expert Consulting in its April report shows the probability of the basic scenario was overestimated, whereas the alternative forecast is just $1/t different from the fact.
Actual Q2 prices ($151/t – Metal Expert Consulting, $172/t – consensus) are different because Metal Expert Consulting uses average quarterly spot prices, while the majority of industry analysts use quarterly contract prices. When spot prices for coal collapsed (April-June), contract quotations fell at a slower pace and the mentioned difference resulted. Under the circumstances, the error of investment banks’ consensus forecast can also be considered minimal, as the predicted level approximately corresponds to the Q2 contract price – $172/t.
Comparison of coking coal price forecast accuracy of MEC and industry analysts
Like the iron ore market, there are two ways the coking coal market can develop in the near future: the coal price dynamics will most probably be the same as the ones registered in 2010 (the basic scenario), still the situation seen last year may repeat itself as well (the alternative scenario). The probability is low other scenarios of coal price changes will unfold, including the one taken as the main scenario in the previous reports.
Under the basic scenario, the price for Australian coking coal is expected to stay at $150/t FOB in Q3 and rebound to $165-170/t in Q4. The same prices will be detected in H1 2014, but later a rise to $175/t may occur. We have also adjusted the coking coal price forecast for 2015 and for a longer term to $160/t and $150/t respectively.
In case a negative scenario takes place in the raw material and steel product markets, the segment for coking coal will witness a price fall to $140/t during the coming three months and to $135/t in Q4. The models built show coking coal prices will probably grow to $144/t in Q1 2014, move down to $129-132/t in Q2-Q3 and climb to $143/t in Q4.
The graph below shows comparison of Metal Expert Consulting’s export price forecast for Australian hard coking coal with the level of prices that investment and industry analysts expect adjusted to this basis.
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