Global coking coal price forecast (April 2015)
Metal Expert Consulting continues publishing open quarterly reports to share its understanding of the coking coal market development in a medium- and long term and compare it with the consensus forecast of investment companies and analysts.
Similar to the iron ore segment, the global market for coking coal was under the influence of a downtrend in Q1. In January-March, spot price for hard coals decreased by $6/t to $106/t FOB Australia. Moreover, in early April the benchmark dropped to an 8-year low of $100/t.
The Metal Expert Consulting’s January forecast of Q1 global coking coal prices has proved to be quite accurate (just $4/t away from actual figure) while the forecast of the investment companies contained the $14/t or over 13% error. Besides, the consensus forecast envisages a rise in price in early 2015 whereas all listed January forecasts of investment banks were above the value given by Metal Expert Consulting. So, even the minimal forecast of investment banks shows a greater inaccuracy than that of Metal Expert Consulting.
Comparison of coking coal price forecast accuracy of Metal Expert Consulting and industry analysts over the recent year
The situation in the global market for coking coal is still uncertain. The adverse macroeconomic fundamentals depress global demand and restrain consumption in China, the largest players in the coking coal market. The supply is excessive which is proved by the fact that over the past year the contract prices have been much above the spot quotes. For instance, in Q1 contracts for hard coals between Australian suppliers and Asian consumers were signed at $117/t FOB, while spot prices were by $10/t lower. Meanwhile, contract price for Q2 is $109.5/t FOB.
According to a number of market participants, prices are unlikely to keep decreasing as they have reached the cost level. This is proved by our consensus forecast, which has been based on most recent forecast of investment companies. The most pessimistic forecasts are presented by Credit Suisse, UBS and Liberium Capital (minimum or close to minimum in the table below), who believe spot prices will drop below $100/t this year. The most optimistic are Macquarie Bank and Commonwealth Bank (maximum or close to maximum forecasts in the table below), expecting the coking coal prices to start recovering since H2 2015.
Global steam coal price 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 in the global coal market, and estimates of key suppliers’ costs.
Metal Expert Consulting’s quarterly forecast until the end of 2016 is based on the Company’s internal methodologies with the use of non-linear dynamics methods. We believe that coking coal prices will decrease to $100/t by the end of Q2, after which the downtrend will cease. However, the recovery should be expected no sooner than 2016.
Our long-term coking coal price forecast is calculated as the expected production costs plus the minimally acceptable operational profitability (estimated at 30% for least efficient suppliers being in the right side of cost curve, or at 50% of the average production costs in the market).
The graph below shows comparison of Metal Expert Consulting’s updated export price forecast for Australian hard coking coal with the prices that investment and industry analysts expect (adjusted to the same basis). Obviously, Metal Expert Consulting’s forecast is similar to the minimal (pessimistic) forecast of investment banks.
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