Metallurgical coal supply side issues abating - HSBCHSBC said...

Metallurgical coal supply side issues abating - HSBC
HSBC said that “We see a more benign outlook for coking coal prices driven by slower growth in global pig iron production and the continued easing of supplyside issues. While the coking coal market will remain vulnerable to bad weather (which pushed up prices in 2011) and labour strikes, we expect prices to ease as exports from Australia, Mongolia and Mozambique increase.”

“We forecast hard coking coal prices (calendar year, fob Australia) at USD220 per tonne in 2012e, USD 228 per tonne in 2013e and USD208 per tonne in 2014e. With hard coking coal supplies increasing (Australia, Mongolia and Mozambique all supply predominantly hard coals) and prices declining, we expect the discount for semi soft coals relative to harder grades to expand. We are already seeing this in recent settlements. We forecast semi-soft coking coal prices at USD151 per tonne in 2012e, USD143 per tonne in 2013e and USD131 per tonne in 2014e with forward prices at c63 per cent of our hard coking coal prices. We see more limited supply growth in low-volatile pulverised coal injection (PCI) coals suggesting prices may be better supported than for semi-soft grades.”

“We retain our long run forecast of USD120 per tonne for hard coking coal (2012e prices), based on prices trading at the top end of the cost curve. We introduce long-run forecasts for semi-soft coking coal of USD76 per tonne and ULV PCI of USD88 per tonne on a similar basis.”

HSBC said that “We expect demand for internationally traded coking coal to grow at c4 per cent p.a. over 2012e to 2016e, implying growth of 11-14mtpa. Asia is expected to continue to be the biggest importer of coking coal, accounting for c73 per cent of incremental imports over the next five years.”

“We expect this growth in demand 60m tonnes over the next five years to be comfortably met by increasing mine output and an easing of infrastructure bottlenecks.”

“The biggest issue impacting coking coal prices has been the abatement of weather-related issues in Australia that impacted the market in 2011. In early 2011, adverse weather in Queensland, Australia damaged mines and rail infrastructure causing export volumes to plummet. The Queensland Resources Council, an industry body, estimated that as much as 40m tonnes of coal production was lost as a result of flooding in the year to June 2011.”

Source – BTINVEST