Customized Research and Market Forecasts

Global coking coal price forecast (October 2014)


This year, Metal Expert Consulting continues to publish 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.

Starting from March, the situation in the global market for coking coal has been untypical as spot prices demonstrated an extremely low volatility (2-3% at most), while the average monthly prices for hard coal stay within $111-113/t FOB (contract prices for deliveries in April-June and July-September are $120/t FOB Australia. Australian sellers and Japanese buyers signed contracts for Q4 deliveries at $119/t FOB.

According to Metal Expert Consulting’s estimates, the following factors will cause the price increase:

- coking coal prices are very close to production costs level: according to China Coal Industry Association’s data, profitability of one third of global producers and 70% of Chinese coal companies is zero or below.

- low coal prices cause production cuts: many companies in Canada and the USA (these countries are the largest world exporters along with Australia) are cutting production; China does not raise production because of zero profitability.

- state regulation of the industry in China and India. On October 15, a 3% duty on import coal was resumed in China. Last month, India (the third leading world importer after Japan and China) also imposed a 2.5% import duty. According to Metal Expert Consulting’s estimates, this will result in a $2-3/t increase in import coal prices in these countries.

To prepare the consensus forecast, we have only considered bank forecasts published in past two months. Being positive that spot prices stay at current level, Merill Lynch and Commonwealth Bank offer the most pessimistic forecast (it corresponds to the minimum forecast in the table). The most optimistic forecasts are offered by Citigroup, Liberium Capital, Wilson HTM (they correspond to the maximum forecast) which expect coal prices to start recovering in early 2015.

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

Q1 14

Q2 14

Q3 14

Q4 14

Q1 15

Q2 15

Q3 15

Q4 15

2014

2015

2016

2020

Consensus forecast

123

113

113

120

127

128

132

134

128

130

146

174

Maximum forecast

125

140

140

145

150

134

143

160

200

Minimum forecast

110

111

111

115

118

123

114

131

150

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

Comparison of actual global coal prices in July-September ($113/t) and Metal Expert Consulting’s forecast published in July ($120/t) shows that we have overestimated the probability of spot prices reaching the level of contract prices. Inaccuracy of our forecast was about 6%. Meanwhile, the investment companies’ forecast differs from actual figures by $14/t or 12%.

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

Q1 14

Q2 14

Q3 14

Q4 14

Q1 15

Q2 15

Q3 15

Q4 15

Fact

123

113

113

-

-

-

-

-

Consensus forecast (investment banks) – October 2013

161

164

166

166

-

-

-

-

Metal Expert Consulting – October 2013

155

139

150

159

-

-

-

-

Consensus forecast (investment banks) – January 2014

154

157

160

160

-

-

-

-

Metal Expert Consulting - January 2014

140

143

151

154

-

-

-

-

Consensus forecast (investment banks) – April 2014

-

149

153

154

158

159

162

162

Metal Expert Consulting – April 2014

-

130

141

133

120

143

126

128

Consensus forecast (investment banks) – July 2014

-

-

127

132

141

143

144

146

Metal Expert Consulting – July 2014

-

-

120

128

143

131

134

125

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, estimates of key suppliers’ costs. For more details on Metal Expert Consulting’s forecasting methods, see April’s Global Iron Ore Price Forecast.

The graph below shows comparison of Metal Expert Consulting’s renewed export price forecast for Australian hard coking coal with the prices that investment and industry analysts expect (adjusted to the same basis). It should be noted that these forecasts are quite similar.

Source: Metal Expert Consulting

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