Coal news and updates

Coal’s drop to a seven-year low may be “overdone” as the price reacted more to macroeconomic and currency swings than supply and demand, according to Societe Generale SA.

A strengthening of the dollar compared with the currencies of coal-producing nations has reduced costs for miners, allowing them to sell at lower prices, while bearish economic sentiment has reduced interest in trading the mineral, Paolo Coghe, an analyst at Societe Generale in Paris, said in a report published today. Coal prices fell 25 percent in Australia, 22 percent in South Africa and 13 percent in Colombia last year.

“Over the last quarter, fundamentals in our model explain less and less of the coal price evolution and other factors, namely the dollar and macro, explain more,” Coghe said today by telephone. “This development together with the sentiment indicator and with the increased correlation with sharply falling oil has been unduly weighing on thermal coal prices for the last several weeks.”

The bank today cut its forecasts for year-ahead coal prices in Australia, South Africa and Europe in 2015, the three biggest traded contracts, by 11 to 12 percent from its previous estimates in November. Increased demand from India and other emerging markets was unable to offset an 11 percent drop to 292 million metric tons in 2014 in imports to China, the world’s largest consumer, Coghe said.

Spot coal from Newcastle, Australia, dropped 5.2 percent to a record $58.60 a ton on Jan. 16, according to data from IHS McCloskey. That’s the lowest price since June 1, 2007.

Sentiment Influence

Investor sentiment declined sharply in the fourth quarter of last year as the Bank for International Settlements highlighted a shift to a risk-averse investment strategy, according to the report. The influence of sentiment on coal pricing grew to 11 percent in the fourth quarter, compared with 1 percent three months earlier.

“Fundamentals can only explain so much of the coal price; the model says it is negative sentiment that is contributing to drag prices down,” Coghe said in an e-mailed reply to questions. “It is also an increased correlation with sharply decreasing oil prices that is contributing to coal prices at levels not seen in many years.”

 

Source: Bloomberg