Customized Research and Market Forecasts

Global coking coal price forecast (October 2013)


Metal Expert Consulting continues to publish open quarterly reports to show its own understanding of the coking coal market development until 2015 and in a long term and compare it with the consensus forecast of investment companies and analysts.

The dynamics of coking coal prices was somewhat different from the price changes in other raw materials’ segments in the past three months. HCC spot prices were falling during recent five months (from $173/t in February to $133/t FOB Australia in July). In August-September, HCC spot prices started to recover and reached $150/t in early October. Q4 contracts between Australian sellers and Japanese buyers were signed at $152/t FOB Australia.

The world market of coking coal is facing a slackening demand from Chinese and Japanese consumers.

China’s economy slowed down noticeably in the recent months, causing the decrease in metallurgical production. In July-August, coke production dropped to 39 mt against 41-42 mt per month during Q2. The decrease has affected coking coal consumption adversely. However, dynamics of coking coal imports by China stays positive: the country boosted purchases from abroad by over 1 mt to 5.9 mt in July. This year, imports of coking coal went up 7% y-o-y to 41 mt. The growth of imports, as well as increased domestic output of coking coal (up 4%) secured further growth of warehouse stocks.

No support comes to global coking coal prices from Japan either: the country produced 56 mt of pig iron in January-August (up 1% y-o-y), while imports of coking coal grew by 10% to 45 mt this year resulting in too heavy stocks.

Seeing the above price fluctuations, 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).

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 27 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 August-September 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 Q2-Q3 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, BREE, 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, Scotiabank, Standart Bank, UBS, VTB Capital, Westpac, Wilson HTM. We have added 2 companies to the range to prepare our consensus forecast (as compared with the April report).

13 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 14 indicators.

The minimum coal price forecast is offered by Numis and ABN AMRO, and their recent reports say that coal supply is expected to outstrip demand in the coming three years. The most optimistic forecasts are made by CIMB Group’s and Scotiabank’s analysts who rely on a significant growth of coal prices on improving conditions in raw material and steel markets.

Global coking coal forecasts by industry and financial companies, $/t

Q3 ‘13

Q4 ‘13

Q1 ‘14

Q2 ‘14

Q3 ‘14

Q4 ‘14

2012

2013

2014

2015

Long-term

Consensus forecast

140

150

161

164

166

166

202

156

164

174

169

Maximum forecast

165

180

195

195

195

170

190

228

200

Minimum forecast

135

143

131

132

132

144

135

129

130

Note. To get the forecasts, we have adjusted all the available prices to a common benchmark basis – the FOB Australia price for hard coking coal.

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 in the global coal market, estimations of key suppliers’ costs. For more details on Metal Expert Consulting’s forecasting methods, as well as on investment forecasts for raw materials, see January report Global iron ore price forecast.

In our July report we stressed the model proved largely unstable due to high volatility of actual coking coal prices, and so two price development scenarios were suggested: a basic one saying coal prices would stay high ($150/t till the end of the year) and an alternative one implying a coal price decrease to $135-140/t in Q3-Q4.

Comparison of actual coal prices in the global market in Q3 with those predicted by Metal Expert Consulting in its July report shows the probability of the basic scenario has been overestimated, whereas an alternative forecast matches the actual prices completely ($140/t). Investment companies’ forecast is $21/t (17%) different from the fact. When a consensus forecast of independent industry analysts was prepared in the previous report, only the then latest reports of investment banks were used.

Comparison of coking coal price forecast accuracy of MEC and industry analysts

Q1 ‘13

Q2 ‘13

Q3 ‘13

Q4 ‘13

Fact

168

151

140

-

Consensus forecast (investment banks) – Jan ‘13

165

170

180

183

Metal Expert Consulting – Jan ‘13

173

195

206

205

Consensus forecast (investment banks) – Apr ‘13

172

182

181

Metal Expert Consulting – Apr ‘13 (basic scenario)

185

193

185

Metal Expert Consulting – Apr ‘13 (alternative scenario)

150

160

172

Consensus forecast (investment banks) – Jul‘13

164

167

Metal Expert Consulting – Jul ‘13 (basic scenario)

150

170

Metal Expert Consulting – Jul ‘13 (alternative scenario)

140

135

Like in the iron ore market report, we will consider only one scenario of developments in the world coking coal market, as we believe that probability of other scenarios to unfold is much lower. The current coal price dynamics will most probably develop in the same way as in 2012-2013 in the short- and medium-term outlook. During the next 6 months, the price for Australian coking coal will rise to $155/t, then it will get bottom-low to $140/t in Q2 2014 and recover to $150-160/t FOB in H2 2014. The price forecast for 2015 and long terms has stayed at the previous level.

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.

Source: Metal Expert Consulting

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