Customized Research and Market Forecasts

Global coking coal price forecast (August 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.

Global prices for coking coal have been falling over the past three months. Amid the decrease in steel and pig iron production (see Global iron ore price forecast) and the related drop of coke production and coking coal consumption, the majority of steelmakers have cut purchases of the material. Besides, still ample stocks of coal have made negotiating positions of consumers much stronger. As a result, the Q3 contract prices have approached the June spot quotes ($93/t FOB Australia for hard coking coal). In July, spot prices dropped again to $85-87/t FOB), which was the 12-year low.

The Metal Expert Consulting’s global coking coal price forecast issued in April has proved to be 9% above the actual figures as we have underestimated the consumer pressure on quotes amid high stocks. Besides, coal demand in China has dropped more than expected. At the same time, the forecast of the investment companies ($108/t) has been even more inaccurate with the error of 19%.

Comparison of coking coal price forecast accuracy of Metal Expert Consulting and industry analysts over the recent year

Q1 15

Q2 15

Q3 15

Q4 15

Actual price

106

91

-

-

Consensus forecast (investment banks) - July 14

141

143

144

146

Metal Expert Consulting – July 14

143

131

134

125

Consensus forecast (investment banks) – October 14

127

128

132

134

Metal Expert Consulting – October 14

115

122

128

128

Consensus forecast (investment banks) – January 15

120

123

127

128

Metal Expert Consulting – January 15

110

108

111

112

Consensus forecast (investment banks) – April 15

-

108

106

107

Metal Expert Consulting – April 15

-

100

101

98

The situation and trends observed in the global market for coking coal is similar to those described in the segment for iron ore (slowdown of demand because of China, market oversupply, currency fluctuations).

The most pessimistic forecasts are presented by Macquarie Bank, Liberum Capital and ANZ ­as they believe the coking coal prices will remain stable at $85-100/t in the next year and a half. Instead, Merrill Lynch, Commonwealth Bank, RBC Capital Markets and Citigroup Inc. say the prices for hard ranks will start recovering from Q3 having reached the cost level. According to our consensus forecast based on price forecasts of 15 companies, the material quotes will be recovering at a slow pace in 2015-2017 to stabilize afterwards.

Due to high volatility of global coal prices, we have used only the recent reports of the investment banks (from June on) to prepare our consensus forecast as well as define its maximum and minimum values.

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

$/t

Q3 15

Q4 15

Q1 16

Q2 16

Q3 16

Q4 16

2015

2016

2017

2023

Consensus forecast

101

103

106

108

110

112

100

109

121

157

Maximum forecast

110

112

115

118

122

127

105

120

145

170

Minimum forecast

85

85

85

85

90

90

92

88

110

127

Note: To get the forecasts, all available prices have been adjusted 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, 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 have no more room for decrease after collapsing to $91/t by the end of Q2. The prices are expected to recover gradually over the next 5 quarters to reach $108/t. By the end of 2017, the prices are most likely to rise over $120/t.

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 that of the investment banks.

Source: Metal Expert Consulting

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