Global steam coal price forecast (July 2013)
Metal Expert Consulting continues to publish open quarterly reports to show its own understanding of the steam coal market development until 2015 and compare it with the consensus forecast of investment companies and analysts.
Like other metallurgical products, steam coal was decreasing in price for four months in a row after peaking in February. In June the material was estimated at $84/t in the global market (Australian 6,600 kcal/kg coal, FOB Newcastle), in early July – at below $80/t.
Metal Expert Consulting’s methodology of forecasting global steam 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.
See below for the consensus forecast of steam coal price changes in the short- and medium-term outlooks that Metal Expert Consulting has made based on 26 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 6,600 kcal/kg steam 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, ANZ, CIMB Group, Citigroup Inc., Commonwealth Bank, Credit Suisse, Deutsche Bank, Econ Intelligence Unit, Euromonitor International, Goldman Sachs, IMF, Investeс, Liberium Capital, Macquarie Bank, Merill Lynch, National Australia Bank, Numis, Renaissance Capital, Societe Generale, Standart Bank, TD Economics, UBS, VTB Capital, Westpac, Wilson HTM, World Bank. We have added 15 companies to the range to prepare our consensus forecast (as compared with the April report).
About one third of the above mentioned companies provide no long-term forecasts about steam 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 Westpac, the maximum one – by CIMB Group and VTB Capital.
Global steam coal forecasts by industry and financial companies, $/t
The use of our own forecasting methods showed results in Q1. The actual coal price was $96/t, which is only $2/t different from the level we suggested in the forecast published at the beginning of 2013 (investment companies’ forecast proved correct).
In our April report we stressed the model based on non-linear dynamics methods proved largely unstable due to high volatility of actual steam coal prices in January-March, and so two price development scenarios were suggested: a basic one saying prices would stay high ($100/t) almost until the end of the year and an alternative one illustrating a coal price decrease to $89-90/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 $2/t different from the fact. The error of investment banks’ forecast is $6/t or 7%.
Comparison of steam coal price forecast accuracy of MEC and industry analysts
The modelling shows there are two ways the steam coal market can develop in the near future: the material 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 main scenario, global coal prices will be firm throughout Q3 and increase thereafter to remain within $91-94/t FOB Australia during the next five quarters. The steam coal price forecast for the medium and long terms has stayed at the previous level.
In case a negative scenario takes place in the raw material and steel product markets, the segment for steam coal will witness a price fall to $83/t during the coming three months and to $82/t in Q4. The models built show coal prices will probably grow to $85/t in Q1 2014, move down to $80-81/t in Q2-Q3 and climb to $84/t in Q4.
The graph below shows comparison of Metal Expert Consulting’s export price forecast for Australian steam coal with the level of prices that investment and industry analysts expect adjusted to this basis.
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