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Bearish stance on coal prices remains – S&P

Research agency Standard & Poor’s Global Platts (S&P) says there is a lack of upside signals for global coal demand, and the agency remains cautious around any significant rebound.

This follows a bull market for coal that ran from 2016 to 2018, when global coal prices appeared to bottom out by the third quarter of last year.

Coal prices were down by roughly a third on the year at their lowest point of 2019, as coal had to compete with weakening natural gas in Europe.

S&P says coal demand growth also slowed in China last year.

Producers ramping up during the previous bull market left global coal markets in oversupply, despite blistering growth in South East Asian imports and solid coal demand in India.

The agency notes that Chinese coal demand growth should rebound from low levels in 2019, but growth will be limited by stagnant power demand growth, as the economy continues its shift from manufacturing and gross domestic product growth shifts into a lower gear.

Higher-than-normal coal stockpiles at the start of the year and slowing hydro generation growth will exert downward pressure on coal demand, it states.

China’s own domestic coal production, which amounts to more than half of the world’s coal output, is rebounding owing to industry restructuring, which presages falling import demand by the world’s largest thermal coal importer.

In Europe, abundant gas supply is expected to keep European gas storage nearly full and prices constrained. With weaker gas prices, S&P says it may see the coal-gas switching channel – the range of coal plants displaced if gas plants are cheaper to run – maximised next summer, as was the expectation last year.

“Even low-cost lignite generation is at risk of being displaced. While we reassert our standing view that US and Colombian exporters will pull back from selling into 2020 seaborne markets owing to a lack of price support, signs are emerging that Russian coal exporters are seeking to grow market share in both the Atlantic and Pacific basins, which will drag on prices,” S&P reports.

While the agency expects continued brisk growth in South East Asian coal imports this year to soak up some of the current oversupply in the market, S&P says additional production cutbacks will be needed to bring the market back into equilibrium.

The potential is there for possible consolidation and reorganisation in the Indonesian coal industry next year, but until major cutbacks from global miners emerge, a bearish stance on coal prices remains, the agency says.
Source: Mining Weekly

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