Supply glut stunts prices for coal

  • Bloomberg News
  • Friday, August 8, 2014 2:55pm
  • Business

MELBOURNE, Australia — Plentiful supplies of coal used to generate electricity are poised to cap prices for the fuel near the lowest in five years, even as demand rises heading into the Northern Hemisphere winter.

Power-station coal at the port of Newcastle in Australia, the world’s second-biggest exporter, will be little changed in the three-month period starting Oct. 1, according to UBS and Bank of America Corp., even as utilities in Asia buy more toward the end of the year. Prices gained 8.1 percent in the fourth quarter of 2013 and 7.6 percent in the same period of 2012.

Colombia, the world’s fourth-largest shipper, is seeking to boost output to a record in 2014 just as rising production in China, the biggest consumer, limits gains in export prices. The supply glut that’s driven coal to the lowest since 2009 will more than double next year, according to Morgan Stanley.

“The market is well supplied,” Daniel Morgan, an analyst at UBS in Sydney, said on July 22. “November, December is when you typically see a big drive to stock up ahead of winter. At this stage, there is so much supply around that it may not necessarily be a price-driving event, it might just provide some stability.”

The glut is projected to expand to 14.9 million metric tons next year, from 6.8 million in 2014, according to a July 8 report from Morgan Stanley. Global exports are forecast to climb to 989 million in 2015, from 959 million, the bank said.

Coal at Newcastle, the Asian benchmark price, dropped to $67.05 a ton in July, the lowest since September 2009, according to data from IHS McCloskey. It closed at $68.10 during the week ended Aug. 1 and has averaged $74.08 this year.

As much as one fifth of global exports lose money at $72 a ton, according to Morgan Stanley. About 20 million tons a year of production needs to be cut by miners to help re-balance the market, according to UBS. Prices will be little changed in the fourth quarter at $71.50 a ton, the bank estimates.

The market is “plagued by oversupply,” Francisco Blanch, an analyst at Bank of America in New York, said in a report emailed last month. Bank of America forecasts prices will be little changed at $71 in the fourth quarter while Credit Suisse estimates an average of $75, unchanged from the previous period.

Demand will increase at a modest rate and prices will remain near the level of marginal production costs, Goldman Sachs said in a July 23 note. The bank estimates coal will average $75 a ton this year and $78 in 2015.

Export disruptions because of heavy rain and production cuts may boost prices. Coal surged to $138.50 a ton in January 2011 after flooding curbed output in Australia and Indonesia.

Some miners are starting to reduce supply. Vale, based in Rio De Janeiro, Brazil, said in May it will halt output from its Integra mine in Australia. Peabody Energy, the largest U.S. producer, will shut its Wilkie Creek operation in the Australian state of Queensland, it said in December.

“The seaborne coal markets remain oversupplied, but we are seeing some signs of re-balancing,” Gregory Boyce, the chief executive officer and chairman of St. Louis-based Peabody, said on July 22. In China, “more than 2,000 smaller mines are expected to close by 2015, as the growing amount of Chinese coal production is uneconomic,” he said.

Output in China, the world’s biggest producer, climbed to 3.68 billion tons in 2013, from 3.65 billion the previous year, according to data from the National Bureau of Statistics.

Indonesia, the world’s biggest exporter of thermal coal, is projected to increase shipments by 2 percent to 420 million tons this year, Australia’s Bureau of Resources and Energy Economics said in its June quarterly report. Output from Colombia, Latin America’s largest producer, may climb as much as 12.8 percent in 2014 to a record 97 million, the nation’s deputy mining minister, Cesar Diaz, said July 17.

Colombia is increasing output as companies such as Glencore Plc, Drummond Co. and BHP Billiton Ltd. reduce the number of work days lost to strikes, according to Diaz. The nation produced 86 million tons last year.

Shipments from Australia are forecast to rise by 2 million tons this year to 190 million, according to the Bureau of Resources and Energy Economics. Sales are projected to climb 3.7 percent to 197 million in 2015.

As prices slide, officials will meet next week at the Coaltrans conference in Brisbane, Australia, to discuss the industry’s challenges.

Markets are “awash with coal at a time of soft demand,” Mark Pervan, the head of commodity research at Australia &New Zealand Banking Group Ltd. in Melbourne, said in a July 31 note. Australian producers are showing no supply discipline and China keeps increasing output, Pervan said. The bank cut its 2014 price forecast by 3.9 percent to $74 a ton.

“There is a lot of coal being produced, and a portion of that is being produced at a loss,” Christian Lelong, a Sydney- based commodity analyst at Goldman Sachs, said on July 30. “Even if mines close, the low Chinese price is putting a cap on the seaborne market and it doesn’t show signs of improving anytime soon.”

Talk to us

> Give us your news tips.

> Send us a letter to the editor.

> More Herald contact information.

More in Business

Black Press Media operates Sound Publishing, the largest community news organization in Washington State with dailies and community news outlets in Alaska.
Black Press Media concludes transition of ownership

Black Press Media, which operates Sound Publishing, completed its sale Monday (March 25), following the formerly announced corporate restructuring.

Maygen Hetherington, executive director of the Historic Downtown Snohomish Association, laughs during an interview in her office on Thursday, Feb. 15, 2024, in Snohomish, Washington. (Ryan Berry / The Herald)
Maygen Hetherington: tireless advocate for the city of Snohomish

Historic Downtown Snohomish Association receives the Opportunity Lives Here award from Economic Alliance.

FILE - Washington Secretary of State Steve Hobbs poses in front of photos of the 15 people who previously held the office on Nov. 22, 2021, after he was sworn in at the Capitol in Olympia, Wash. Hobbs faces several challengers as he runs for election to the office he was appointed to last fall. (AP Photo/Ted S. Warren, File)
Secretary of State Steve Hobbs: ‘I wanted to serve my country’

Hobbs, a former Lake Stevens senator, is the recipient of the Henry M. Jackson Award from Economic Alliance Snohomish County.

Mark Duffy poses for a photo in his office at the Mountain Pacific Bank headquarters on Wednesday, Feb. 14, 2024 in Everett, Washington. (Annie Barker / The Herald)
Mark Duffy: Building a hometown bank; giving kids an opportunity

Mountain Pacific Bank’s founder is the recipient of the Fluke Award from Economic Alliance Snohomish County.

Barb Tolbert poses for a photo at Silver Scoop Ice Cream on Thursday, Feb. 29, 2024 in Arlington, Washington. (Annie Barker / The Herald)
Barb Tolbert: Former mayor piloted Arlington out of economic brink

Tolbert won the Elson S. Floyd Award, honoring a leader who has “created lasting opportunities” for the underserved.

Photo provided by 
Economic Alliance
Economic Alliance presented one of the Washington Rising Stem Awards to Katie Larios, a senior at Mountlake Terrace High School.
Mountlake Terrace High School senior wins state STEM award

Katie Larios was honored at an Economic Alliance gathering: “A champion for other young women of color in STEM.”

The Westwood Rainier is one of the seven ships in the Westwood line. The ships serve ports in the Pacific Northwest and Northeast Asia. (Photo provided by Swire Shipping)
Westwood Shipping Lines, an Everett mainstay, has new name

The four green-hulled Westwood vessels will keep their names, but the ships will display the Swire Shipping flag.

A Keyport ship docked at Lake Union in Seattle in June 2018. The ship spends most of the year in Alaska harvesting Golden King crab in the Bering Sea. During the summer it ties up for maintenance and repairs at Lake Union. (Keyport LLC)
In crabbers’ turbulent moment, Edmonds seafood processor ‘saved our season’

When a processing plant in Alaska closed, Edmonds-based business Keyport stepped up to solve a “no-win situation.”

Angela Harris, Executive Director of the Port of Edmonds, stands at the port’s marina on Wednesday, Jan. 24, 2024, in Edmonds, Washington. (Ryan Berry / The Herald)
Leadership, love for the Port of Edmonds got exec the job

Shoring up an aging seawall is the first order of business for Angela Harris, the first woman to lead the Edmonds port.

The Cascade Warbirds fly over Naval Station Everett. (Sue Misao / The Herald file)
Bothell High School senior awarded $2,500 to keep on flying

Cascade Warbirds scholarship helps students 16-21 continue flight training and earn a private pilot’s certificate.

Rachel Gardner, the owner of Musicology Co., a new music boutique record store on Thursday, Jan. 18, 2024 in Edmonds, Washington. Musicology Co. will open in February, selling used and new vinyl, CDs and other music-related merchandise. (Olivia Vanni / The Herald)
New Edmonds record shop intends to be a ‘destination for every musician’

Rachel Gardner opened Musicology Co. this month, filling a record store gap in Edmonds.

MyMyToyStore.com owner Tom Harrison at his brick and mortar storefront on Tuesday, Sept. 6, 2022 in Everett, Washington. (Olivia Vanni / The Herald)
Burst pipe permanently closes downtown Everett toy store

After a pipe flooded the store, MyMyToystore in downtown Everett closed. Owner Tom Harrison is already on to his next venture.

Support local journalism

If you value local news, make a gift now to support the trusted journalism you get in The Daily Herald. Donations processed in this system are not tax deductible.