Thermal coal prices will remain below current spot prices until at least 2021, according to Macquarie, and could face a wave of brutal competition from natural gas that threatens to depress prices even further.
According to a recent Macquarie report on the global LNG market, the world faces a surplus of LNG for the foreseeable future, rising to a peak of about 70 million tpy in 2019.
“This peak is a thermal coal equivalent of about 190 million tpy, or over 20% of the current seaborne market,” Macquarie said. “If a meaningful portion of this surplus LNG manages to displace coal in regions with spare capacity (mainly Europe), coal’s demise might [be] even more brutal than we currently anticipate.
Macquarie forecasts seaborne thermal coal demand of 828 million t by 2021 with India becoming the largest single buyer, importing 159 million t by 2021, followed by Japan and South Korea. Meanwhile Chinese imports tail off to just 49 million t from 102 million t in 2016.
Australian and South African spot prices for thermal coal are forecast to be US$48 per tonne this year – down from US$59 per tonne and US$58 per tonne, respectively, in 2015.
The news is more positive on the metallurgical coal side where Macquarie has recently revised its forecast for contract prices for hard coking coal up 6% for this and 4% next year with more significant upgrades to its semi-soft coking coal and PCI prices – although all remain under 2015 levels.
Macquarie now forecasts average price for hard coking coal of US$82 per tonne this year compared to US$102 per tonne last year.
Average annual prices for semi-soft coking coal price are forecast to be US$66 per tonne for this year compared to US$78 per tonne in 2015, while the PCI forecast stands at US$70 per tonne, down from US$84 per tonne last year.
“Supply displacement is finally materializing with exports from the US having dropped off sharply from 2H15,” Macquarie said. ‘The point of caution is that, since future supply displacement is reliant on further US cuts – and there are not really a function of whether the price is a couple of dollars high or lower by more-so the outcome of bankruptcy restructurings.”
As a result, Macquarie sees the potential for price uncertainty with swings possible either way depending on the demand, which is expected to 268 million t this year.