Coal news and updates

Falling Chinese coal consumption and output undermine global market

China’s coal consumption and production fell last year for the first time in 14 years, confirming a trend that has become one of the heaviest weights sinking the global coal market.

The world’s largest coal producer shrank both its output and demand by nearly 3 per cent, according to fresh government data. The decline is an early sign of China’s success in joining countries around the world in trying to diminish air pollution and capitalize on falling oil and gas prices.

But analysts said the trend also is part of a worst-case scenario for coal miners the world over, who had hoped Chinese coal imports would save them from collapsing markets in the West.

The decrease puts China at or near an inflection point known as “peak coal,” at which a long-term decline in consumption of the mineral begins after decades of heavy use. The shift already is having knock-on effects, with coal prices world-wide falling to six-year lows, with mines closing throughout China and with some global mining companies facing insolvency.

Miners previously had “predicted a straight line of continued growth in China. Now here we are,” said Lucas Pipes, an analyst at Brean Capital LLC, an investment bank and asset-management firm. “That is a sea change in the global coal market.”

Data released by the government on Thursday show China used 5.9 per cent more crude oil and 8.6 per cent more natural gas in 2014. Coal output last year fell 2.5 per cent to 3.87 billion metric tons from a year ago, while coal consumption fell 2.9 per cent, according to the National Bureau of Statistics.

Economists had forecast China will hit peak coal around or slightly before 2020, but some analysts say there are signs that this has already happened. Coal demand in Europe and the U.S. is also shrinking, while growing economies like India aren’t importing enough to offset China’s outsize cutback.

International benchmark prices for the mineral have fallen nearly 50 per cent to about $62 a metric ton and the U.S. benchmark has fallen 24 per cent to $52.90 from peaks levels in 2012, when U.S. exports hit their high, according to Platts, a pricing service of McGraw Hill Financial Inc. Prices for metallurgical coal, which is used to make steel, have tumbled 55 per cent from their 2012 peak to $102.8 a metric ton, as the Chinese government has moved to slow down its steel industry.

Chinese coal imports last year fell 10.9 per cent from 2013 to 291.2 million tons, the bureau said.

“There’s no question that a lot of U.S. companies in particular latched their hope to significant gains in China…almost into perpetuity,” said Mark Levin, an analyst at BB&T Corp. ’s capital-markets group. And given transportation costs, the U.S. miner is “the guy who gets priced out of Asia the fastest.”

Coal’s troubles fit into larger struggles across the mining industry. Many companies boosted production to meet surging Chinese demand, only to oversupply the market. Miners have racked up major losses, but falling currencies and energy prices have cut costs and helped some producers keep ramping up production to compete for market share.

The goal of coal mining companies is to survive until there is a rebound for coal, which is still by far the dominant energy source in China. Some analysts have said Chinese coal consumption could rise slightly in the coming years if concerns about the flagging economy grow and prices for oil and other fuels shoot up. Many are hopeful about demand in India and other emerging markets.

The coal market is likely nearing a bottom, said Clive Burstow, a fund manager at Baring Asset Management Ltd. in London. His $10.1 million mining fund, part of $45.1 billion under management at Baring, looks for equities that can profit over three to five years. The coal market is clearly oversupplied now, but investments are slowing and emerging market demand is likely to lead a rebound in five years, he said. “Now is the time to be looking at coal companies,” Mr. Burstow said. “It does look very promising.”

source: http://www.theaustralian.com.au