Coking coal production cutbacks are likely to rise to more than 40 million tonnes this year, mostly in the United States, because of poor conditions in the steel markets, according to Gerard McCloskey, founder of The McCloskey Group.
Demand for hard coking coal from importing nations has fallen by 30 million tonnes, about a quarter of the production of the material used in steel making. There could be a further pull back by another 11 million tonnes by US hard coking coal users, McCloskey said at the South African Coal Exports Conference in Cape Town.
Coking coal output has been cut by 32 million tonnes based on announcements from producers, he said. "I think that number could rise to in excess of 40 million tonnes and that should be enough," McCloskey said.
Total global steel demand by the end of December contracted by 25% - 35% if China is excluded.
Coking coal prices have fallen 40% and if it settles near $100/tonne will be at a level below China's domestic price, which, combined with a government safety clampdown could result in sales to China.
There is a risk that if steel producers continue to apply downward pressure on coking coal price contracts it might curtail investment in future projects and could possibly contribute to a spike in prices in the future, he said.
Coking and thermal coal prices have retreated as hard and fast as other commodity prices, he told delegates at the conference, saying there had been a bubble in the prices.
"Coking and thermal coal prices have crashed through last year's benchmark prices. Where they are going to end up is still to be seen," he said.
Pushed on a forecast for the lowest price Richards Bay steam coal will reach on a free-on-board basis, McCloskey said it could get to between $55-60, while Lennon said he thought it could drop below $50. McCloskey said it depended on Indonesian supply as well as that from China and Russia.
Thermal coal, which was spared the market downturns of the 1970s, 80s and 90s, has been hit hard this time round. Part of the reason could be a reduction in Chinese power demand because of a slowdown in industrial output. Some 80% of power there is generated from coal.
Glimmers of hope that the slow down in the Chinese economy could be easing as bulk shipping rates have doubled in recent weeks because of increased demand from China but the picture for the rest of the world is still bleak, with data from the OECD showing expectations of a deterioration in economic conditions for the next quarter at least.
South African steam coal producers might have an export opportunity into Asian countries like India, South Korea and Taiwan because Newcastle coal is some $15/tonne more expensive than coal from Richards Bay, which last Friday sold for $75.20 free-on-board. ARA prices are lower than those from Richards Bay, McCloskey said.
International trade in steam coal has grown by 30 million tonnes a year since 2000, but this is seen falling by half up to 2010. Indonesian production is not seen growing as fast as had been first expected, McCloskey said.
Seaborne steam coal is seen growing from 610 million tonnes last year to 800 million tonnes in a decade and then up to a billion tonnes.
Source: miningmx.com
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