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Interview: Guillaume Perret, Founder and Director, Perret Associates

Guillaume Perret discusses the coal price forecast for Q415, the paper market in Asia’s coal sector and the developing landscape for trading desks over the next year.

Guillaume Perret has sixteen years of extensive experience in commodities trading. Before establishing his own consulting business, Mr Perret set up and developed the coal and freight trading desk for the German utility RWE in London and traded grains for the international trading house Louis Dreyfus. Mr Perret is the course director of the Coal Trading and Risk Management Training Course and will be speaking at The World Coal Leaders Network on 18 - 20 October in Barcelona. He has earned an MBA from the London Business School and Kellogg School of Management and has an engineering degree in biology and geology.

Some of the coal sector’s largest producers have been accused of OPEC-like tactics in maintaining supply, despite today’s low price environment, in order to drive out high-cost producers. How much scope do you see for more high-cost producers exiting the market over the next 6 months and to what extent have they been helped by a stronger US dollar?

As far as I can see, many coal producers shared a genuine expectation that the slowdown in demand was cyclical rather than structural. Had this been the case, the strategy of maintaining operations and weathering the storm by reducing the average cost of production might have worked.

Unfortunately, it appears that the changes in the market are more profound (at least that is what our latest research is indicating). Producers at the high end of the cost of production curve have been burning cash for months and it looks increasingly likely that some will have to shut down, one way or the other. The depreciation of many currencies against the US dollar and the fall in oil prices has thrown a lifeline to some of them over the last 6 months, but this might not be enough. This is the case in particular for some US producers, who have in fact been handicapped by US dollar strength.

What is your coal price forecast for Q415 and why?

We are seeing potentially interesting signals which make us think that prices could find support in the coming weeks and potentially improve by the end of the year. We think that the majority of bad news regarding China is already in the price and we could see a slight rise in Chinese imports in the coming months. A few countries in Europe, such as Germany, the Netherlands and Spain, are also seeing robust coal usage. More fundamentally, though, we think that the potential price support is more likely to come from producers adjusting supply to fit market conditions.

It sounds paradoxical but after years of rapid growth in steam coal demand, which triggered a sharp increase in production and ultimately a fall in prices, we could be entering a new era, in which a contraction in demand could result in a contraction in supply and could ultimately support prices.

How mature is the paper market in Asia’s coal sector, how closely does it correspond to physical coal prices, and how do you see this developing over the coming 6 months?

It always strikes me when visiting India or the Far East, that there is a big discrepancy between a very developed and still growing physical market and the financial market, which remains at an early stage of development. This is the opposite of what we are seeing in Europe. I believe this is partly due to differences in the history of these respective markets and in their cultures.

The fact that electricity is a commodity in Europe but something that many people in some Asian countries still lack is an additional factor. Still, I think it is only a question of time before the financial coal market becomes more developed in this part of the world as well.

What are the greatest challenges in generating an accurate short-term price forecast?

All the unforeseen events that can have a sharp impact on prices, such as strikes, port congestion, or Force Majeure declarations.

A number of coal trading desks have recently been closed down. How are the strongest trading desks handling the current market situation and how do you see the landscape for trading desks developing over the next 12 months?

We are probably coming to the end of one cycle and preparing for the next one. As part of this transition, we are seeing many companies (including ourselves) reorganising in order to adapt to the changes in market conditions. We have already seen a few cycles in the coal market, such as the collapse of Enron in 2002 and Lehman Brothers in 2008, and despite these the size of the financial market has been on a sharp upward trend overall, with volumes reaching 3.9bn tonnes in 2014.

Guillaume Perret will be providing a three month spot coal price forecast at The World Coal Leaders Network on 18 - 20 October in Barcelona.

Perret Associates provides a comprehensive and unique portfolio of market analysis and forecast in the coal and dry freight markets. Find out more about the Long Term Price Forecast Steam Coal and Freight: 2015-30.

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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