Fitch dismisses potential coal rise

Fitch Ratings has rejected predictions coking coal prices will increase any time soon.

It comes only days after market analysts forecast a strengthened market for metallurgical coal, and expectations of a rise in the benchmark contract price.

B&T Capital Markets coal analyst Mark Levin forecast a rise in the price on Friday, pointing to the ‘significant’ amount of Chinese coal slated to leave the market as the government shuts down mines.

“If the prices don’t rise, they’ll at least end up being no worse than flat,” he said.

Levin pointed to the revitalised attractiveness of coal, citing Consol Energy’s sale of a coal mine in the US for US$420 million.

“They must think a big recovery is in the offing,” Levin said.

However Fitch has dismissed these views, stating coking coal prices would likely stay weak over the near term, with expectations of it returning in strength gradually over a number of years as the oversupply is reduced.

Some steps have already been taken in this regard both proactively and as a result of major bankruptcies.

US coal supply has been dramatically slashed by both Alpha Natural Resources and Arch Coal declaring bankruptcy.

Fitch expects these bankruptcies to continue.

Chinese demand is also expected to remain weak for close to a decade, as the country actively works to reduce its import levels and shrink its steel industry.

An official at China’s human resources and social security ministry said the nation’s industries expect to cut around 1.8 million workers as it seeks to reduce capacity, and address the growing stockpiles in the country.

The country plans to reduce around 500 million tonnes of coal production over the next three to five year, mainly by closing more than 5000 coal mines around the nation and relocating around one million workers, setting aside 30 billion yuan ($6.5 billion) to aid relocation of the workers.

China also has also announced it will not approve any new coal mines for the next three years.

Any increase in coking coal demand is likely to be met by Australian supply, with added bonus of no tariffs, due to the China Australia Free Trade Agreement (ChAFTA) signed last year.

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