Tuesday, June 30, 2015

Metallurgical Coal Outlook

Benchmark prices for high-quality met coal for the third quarter of 2015 settled at $93 a metric ton. The second quarter benchmark of $110 was already tracking roughly $10 below the settlements from the past four quarters. 

“Once supply cuts take effect, we expect prices to improve somewhat; however, any material recovery is increasingly appearing unlikely over the next 18 months,” said Moody’s. 

The ratings agency estimated that the about 300-million-ton seaborne market was currently oversupplied by roughly 5% to 10%, with global suppliers, mostly in Australia and the US, having already announced supply cuts of over 30-million metric tonnes since early 2014. 

However, these were slow to take hold, Moody’s noted. Production volumes were also being propped up by cost curves shifting lower, owing to falling oil prices and currencies weakening against the US dollar, particularly the Australian dollar, the source of over half of global met coal production. 

“Despite the downward trend of the global cost curve, we believe a significant portion of global met coal production remains uneconomic and further production cuts will be necessary to bring the markets back into balance,” Moody’s warned.