Coal news and updates

European thermal coal for delivery next year extended losses as plummeting oil prices reduced mining costs and an oversupply of the mineral in the seaborne market was forecast to treble.

 

Coal for Rotterdam, the European benchmark, fell as much as 1.5 percent, according to broker data compiled by Bloomberg. Prices from Australia to Colombia plunged for a fourth year in 2014 amid slowing demand in China, the biggest user of the fuel.

 

Exporters have been helped by a strengthening U.S. dollar, which increases their revenue in local currency. Imports to the U.K. and Germany, Europe’s biggest buyers, declined by a combined 11 percent in the first 10 months of last year as milder weather, greater use of renewable energy and increased energy efficiency damped demand.

 

“Producers are reluctant to cut and in fact many are increasing output with a strategy to cut the average cost of production,” Guillaume Perret, director in London at Perret Associates, a coal, freight and steel market research group, said by phone today. “Demand is not increasing as much as expected and in fact is starting to erode in China.”

 

Coal for delivery to Amsterdam, Rotterdam or Antwerp next year dropped as low as $60.85 a metric ton, before trading at $61.20 by 2:20 p.m. London time, according to broker data on Bloomberg. The contract declined to $59.85 a ton yesterday, the lowest since Bloomberg began compiling data in 2007.

 

Global seaborne coal supply will increase 1 percent to 1.083 billion metric tons in 2015, while demand for cargoes will drop 1 percent to 1.053 billion, Deutsche Bank forecasts. That’s more than triple the 9 million-ton surplus the bank estimated for 2014.

 

Chinese Imports

 

Shipments to China, the world’s largest consumer of the fuel, dropped 14 percent in 2014, Zhang Hong, vice head of the China National Coal Association told reporters in Beijing Jan. 8. China’s government ordered power companies to cut imports by 40 million tons in the fourth quarter in an effort to support domestic producers.

 

Shipments to Germany and the U.K. fell to 70 million tons in the first ten months of 2014 from 79 million a year earlier, according to government data.

 

Producers show little sign of cutting output to stem the surplus, Perret said.

 

“There has been a strategy for the main miners, especially those with low costs of production, to keep producing and push more expensive producers out of the market,” he said. “But due to the previous surge in steam coal demand, in particular during the period 2007-2012, a significant part of the additional supply came from new mining companies, meaning the influence of large mining companies is not as significant as it used to be.”

 

Oil Prices

 

The drop in oil prices has cut the cost of fuels used by machinery at coal mines, which can represent as much as 40 percent of production costs for surface mines, according to Macquarie Group Ltd. (MQG) West Texas Oil Intermediate crude yesterday lost 18 cents to $45.89 a barrel on the New York Mercantile Exchange, its lowest close since April 2009.

 

“We’re just starting to see the impact of the collapse in oil prices,” Perret said. “It will help some, but many producers have signed long-term contracts for their fuels and for them it won’t be easy to benefit as quickly as others.”

 

 

Source: Bloomberg