Global Coal prices may remain low if Chinese coal production rises: Barclays
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Coal prices are likely to remain low, both in China and globally if the production of coal inChina rises.
The outlook for Chinese coal production is also looking bullish, with the potential for incremental supply looming once smaller mines are allowed to resume production in Shanxi Province after the National Peoples Congress is concluded in March, according to a Barclays report.
Prices are very hard to be bullish,particularly when the market falls given such highly supportive seasonal demand drivers, the report added.
Despite the freezing weather that is buoying the natural gas market, global coal prices continue to tumble as the buy side is not strong enough for the offers. CIF ARA has fallen to $86.95/t, down 1% w/w, while the front FOB Richards Bay (South African) contract saw prices fall to $86.9/t. As a result, the prompt CIF ARA – FOB RB spreads remained negative, but barely negative, which points to weakness in both basins as prices drift against the background of supportive weather.
With prices starting to head to levels at which US and Russian coal struggles to sell into Europe (or anywhere else), the outlook for producers’ margins remains poor for this year.
Buying interest over the past few years has been from Asia, and it has been for low-CV coal. This week, Chinese buyers have been reported (Platts) as showing increased interest for Indonesian 3800 kcal/kg, with FOB Kalimantan prices being quoted at $37-39/t, or about $61-63/t when adjusted for the energy content.
The demand for higher-quality CV remains low; thus, the higher-quality benchmarks have seen their prices continuing to be squeezed. The lack of demand is somewhat surprising given the weather trends, but this may be due to much better priced domestic Chinese coal, which is helping to limit the opportunities for arbitrage with sea-borne coal.
Source: Commodity Online
Source: The Shipping Tribune – 20 January 2013
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