Alessandro Vitelli, Ben Sharples and Mario Parker
COAL prices, already down 52 percent since 2011, are forecast to keep falling. The rout shows that exporters’ Opec-type tactics of trying to squeeze out high-cost producers have been frustrated by the rising dollar.
Miners from Colombia to Australia maintained output as prices fell for a fourth year in 2014 amid a global glut of seaborne coal that Deutsche Bank said was poised to triple this year.
A 19 percent jump since July in the Intercontinental Exchange’s dollar index, which tracks the greenback against 10 major peers, has helped companies that extract the power-plant fuel whose costs are measured in local currencies.
The approach is comparable to that of Opec (Organisation of Petroleum Exporting Countries), the 12-member group that agreed in November to keep output unchanged even as a 49 percent slump in crude in the second half tested the ability of US drillers to keep pumping. US coal producers, who are exposed rather than protected by the rising dollar, are cutting output, while the Russians have been the biggest beneficiaries as the rouble’s decline has made them among the lowest-cost producers.
“It’s the same strategy in coal as in oil,” Guillaume Perret, a director in London at Perret Associates who has tracked and traded energy for 16 years, said. “There has been a strategy for the main miners, especially those with lower costs of production, to keep producing and push more expensive producers out of the market.”
Falling prices
Thermal coal at the port of Newcastle in Australia, the fuel’s biggest export harbour, averaged $70.97 a metric ton in 2014, according to prices from Globalcoal. This year it will drop 8.9 percent to $64, the lowest since 2006, based on the median of five analyst estimates compiled by Bloomberg from UBS Group to JPMorgan Chase.
North-west Europe coal will average $62.50 a ton this year, the lowest in records going back to 2007, according to the median of six analyst estimates compiled by Bloomberg. Average prices tumbled 12 percent in 2014 to $78.36.
The dollar rose last year as signs of stronger US growth encouraged the Federal Reserve to end asset purchases and move toward raising interest rates. The Russian rouble declined 49 percent against the greenback over the last 12 months.
Russian thermal coal cost $50 a ton to deliver to Europe on January 7, compared with $83 last June, Citigroup said on January 14. The Russians have gone from the highest-cost suppliers in the Atlantic and Pacific Basins to the second cheapest in both, according to the bank.
The Australian dollar fell 8.3 percent last year against the greenback, positioning Australian producers to regain market share, Jim Thompson, a director of coal at IHS in Knoxville, Tennessee, said last week.
“The lower prices aren’t as painful for them to accept,” Thompson said. “It’s much like Saudi Arabia and Opec with oil right now.”
As coal dropped, China, the world’s biggest consumer, enacted a raft of policies from quality restrictions to import reductions to protect domestic suppliers. Foreign supplies fell 11 percent to 292 million tons last year, the first decline in at least seven years. –
Bloomberg