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Low thermal coal prices are down to waning Chinese and Indian demand

Thermal prices of coal are low because Chinese and Indian demand has been weaker than expected, according to the majority of delegates at Coaltrans India 2014.

Thermal prices of coal are low because Chinese and Indian demand has been weaker than expected, according to the majority of delegates at Coaltrans India 2014.

Another reason cited by delegates at the event, which was held in Goa, were that favourable supply conditions on a global level have led to outperformance by all producing regions, while others put it down to Australian producers having take or pay contracts for port and rail.
Mark Gresswell, Chief Analyst at HDR Salva, said that the trend has been driven by oversupply, with Australia being the main culprit because of the nation’s take or pay contracts.

“The issue is oversupply,” he argued during a panel debate. “My compatriots back home in Australia are continuing to oversupply the market. Indonesia’s growth in supply tailed off strongly towards the end of last year.”

Colombia, South Africa and the US all withdrew last year as the market got really tight, but Australia pushed out another 20 million tonnes, according to Mr Gresswell.

“The take or pay structure is driving strange behaviour,” he said. “The take or pay structure in Australia where you may pay up to $25 a tonne for infrastructure that you don’t use drives a greater push in Australian exports.”

Around 40 per cent of delegates at the event did not expect thermal coal prices to improve during the remainder of this year because unrestrained production will remain in place and supply will continue to outpace demand, especially in Indonesia and Australia.

Just over 20 per cent of delegates were more optimistic and believed that they will improve because discipline will emerge as cost pressures continue and historic relatively high-priced contracts roll off. They stressed, however, that this will take time to filter through to prices.
This content is provided by Coaltrans Conferences for informational purposes only, and it reflects the market and industry conditions and presenter’s opinions and affiliations available at the time of the presentation.

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