2017 at a glance - Coking Coal
Highest economist in the land says coal outlook has flipped completely in the last 12 months.
Wednesday 11 January 2017
The federal government’s Office of the Chief Economist has forecast this week that the price for Queensland coking (steelmaking) coal will remain strong until about June, before falling steadily into 2018 because of falling steel demand in China and increased supplies from other parts of the world.
That in itself is an astonishing turnaround on twelve months ago when the consensus was low prices in the short term [around $89 a tonne] with better prices in the long run. It also reminds us how often the best-researched forecasts are entirely wrong.
In late 2016, metallurgical coal spot prices soared to record Australian dollar levels - taking everyone in the local coal market completely by surprise. Unfortunately, that meant many local miners (like Wesfarmers Curragh for example) were unable to capitalise on the spot-market opportunity because they were still trying to fulfil bottom-of-the-market priced contracts agreed to earlier in the year.
However, the strong spot market gave coal producers a far stronger bargaining position in their quarterly contracted supply negotiations for the start of 2017. That meant coal sold out of Central Queensland for the first three months of this year is at five-year highs at around US$285 a tonne, which is more than double the benchmark contract price of US$114 a tonne averaged in 2016.
That entirely unforeseen spike in prices will add $20 billion to Australia’s export earnings.
However, beyond March, Economist Gayathiri Bragatheswaran from the Office of the Chief Economist says prices will return to roughly where they were for most of the last year.
“Prices are forecast to decline over the outlook period, as China’s metallurgical coal import demand stabilises,” he said.
“Global metallurgical coal producers have been increasing production in response to higher prices, and China has now eased domestic supply-side policy measures to bring prices down.
“This trend is expected to continue in 2017 and the Australian benchmark metallurgical coal contract price is forecast to average US$186 a tonne in 2017, a 63 percent increase from 2016.
“In 2018, Australian benchmark metallurgical coal contract prices are forecast to decline 42 percent to US$109 a tonne.”
China, Japan and India will continue to be our biggest coking coal customers, with India expected to be the fastest growing one.
“India’s metallurgical coal imports are forecast to increase by 12 percent in 2017 to 55 million tonnes, and by a further 3.6 percent in 2018 to 57 million tonnes,” Economist Gayathiri Bragatheswaran said.
“Growth in imports is expected to be underpinned by the increased need for more metallurgical coal to support local steel production, given India’s very small domestic coking coal reserves.”
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