Bank of America Merrill Lynch (BoAML) has lowered its 2012 thermal coal price forecast as an oversupply in global markets is not expected to improve in the near future, the bank said on Wednesday.
But with coal production costs rising in key markets such as the United States and China, the bank said that it was keeping its 2013 price outlook unchanged.
"The oversupply in the global coal markets will not improve quickly ... (and) in the absence of any big supply disruptions, we see some downside risk to thermal coal prices in the next months," BoAML said in a research note.
"Thus, we are reducing our forecasts for Australian Newcastle coal prices in 2H12 to $107 per tonne, from $120 prior, acknowledging better supply and weaker demand conditions."
Physical coal trading has been thin during the past months as thermal coal markets are suffering from significant oversupply as a result of healthy Colombian, U.S., South African and Russian exports, while demand has been weak.
"As coal demand in the Atlantic region, particularly in Europe, remains constrained and coal supplies are abundant, some of these additional volumes have been pushed into the Pacific coal market, in turn generating regional oversupply there," BoAML said.
Beyond 2012, the bank said that it was "more positive on the market" as coal production costs were rising sharply in the United States and China, leading to production cutbacks.
"We see API2 front quarter prices drop to $95 a tonne, from $102.40, but see API2 CAL13 (calendar year 2013) finding support at $110 a tonne. For 2013, we keep our average forecasts for Newcastle coal at $110 a tonne," the bank said.
BoAML also said that it expected India to surpass China as the world's biggest coal importer in 2012.
"Domestic coal shortages in India are getting so extreme that it is impacting power generation and curbing economic growth. We see India surpass China as the largest coal importer this year as it tries to plug its shortfall with foreign supplies," the bank said.
Source: Reuters