​Coal futures fall to near decade lows

After an abortive rally coal futures have continued their downwards progression.

The price has now dropped to nine year lows, after a 10 per cent rally earlier this year, according to Reuters.

In January and February hopes rose after Newcastle Port prices surged 30 per cent from $60 per tonne to a peak of $80 at the end of February.

However by March this price soon slumped to $68 per tonne again.

This initial price surge was related to Chinese demand for cleaner Australian coal in response to pressures of air pollution, export cuts from the US and output cuts from Glencore, as well as a 30 per cent rise in the price of oil.

However now the API2 2015 coal futures have fallen, dropping below US$60 for the first time since January 2006.

In the wake of this the ANZ Bank has dropped its forecast for Japanese contract prices from $75 per tonne to $70, while NAB has called $72.50, a significant drop from last year’s March price of $81.80 per tonne while most analysts are reporting the current levels as the market floor.

Prices may hurt even more as Chinese demand tapers off after the country announced plans to reduce consumption levels by 160 million tonnes over the next five years.

Much of the coal market is looking to reduce output or sell off underperforming coal mines to address market oversupply and return strength to the coal price, even as Rio Tinto increases its saleable reserves at its massive hail Creek coal mine.

Anglo American has flagged the sale of two of its coal mines, Callide and Dartbrook, telling Australian Mining in terms of its broader coal portfolio everything is currently under review and the outcome of that review is still to be determined.

The move is part of a company-wide coal shakeup which will also see the review of South African operations.

According to Anglo American CEO Mark Cutifani coal mines will be closed or suspended at a steady rate until reduced supply drives a price recovery, adding that globally they will most likely shut at a rate of around one every two to three weeks until the lack of supply finally affects price.

Glencore is operating in the same vein, having reduced output over Christmas by 15 million tonnes by temporarily closing operations.

According to the miner it was "a considered management decision given the current oversupply situation".

Glencore said this will reduce the need to push incremental sales in the weak commodity price environment.

“We don’t want to be the ones forcing the price down with oversupply,” Glencore CEO Ivan Glasenberg said earlier this month

The miner has also announced the possibility of closing its South African coal operations.


However it is not all bad news.

BREE said from 2016 the market balance is expected to tighten as more mines close and availability tightens.

This will result in contract prices rising to US$86 a tonne by 2019.

While the price rises are not dramatic, and are nowhere near the highs seen at the peak of the boom, they will work to ease a little pressure for mining companies, especially for Australian miners.

According to analysts the falling dollar is also likely to insulate margins in Australia.

“Modest productivity gains, the rapid fall in oil prices and currency devaluation in Australia and Russia will help lower costs. Therefore, Australian mines stand in a relatively strong position compared with higher cost suppliers – particularly those in the U.S.,” Wood Mackenzie said.

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