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BofAML report pointed out that on going mine ramp up, weak producer currencies and contango market structure suggests countries like Australia will not curtail production. Seaborne coal demand from China is restrained..

11 Sep 2013

LONDON (Commodity Online): Seaborne coal prices will continue to face bleak prospects this year as AP 12 coal, CaL14 have broken below $90 per metric ton and now trading at $84/metric ton, according to Bank of America Merrill Lynch (BofAML ).

In a new report it said that producing nations are not curtailing production but cutting costs while Colombian exports are likely to rebound as port strike is coming to an end.

BofAML report pointed out that on going mine ramp up, weak producer currencies and contango market structure suggests countries like Australia will not curtail production. Seaborne coal demand from China is restrained as domestic prices are collapsing and weak Indian currency curtails demand for expensive seaborne coal.Stock levels in key exporting and importing hubs are elevated while Colombian port strike in July impacted supplies to the tune of 2.4 to 2.7 mn metric tons of coal and it has the potential to rise to 8 mn metric tons. However, Colombian loss was offset by higher supplies from USA and South Africa, BofAML report said.

Prohibitively high costs are not a deterrent for production nations to produce more although they are cutting down on costs. "Despite a small downward shif in the cost curve this year, largely on the depreciation of producer currencies agaisnt USD, more than 20% of seaborn coal producers are not covering cash costs at current Cl 14 Newcastle coal prices.

Meanwhile, China imports may be curtailed as domestic production rises and the threat of further reduction of coal imports can't be ruled out.Not only is domestic production on a structural uptrend but the government has been trying to strategically reduce imports in an attempt to support domestic coal producers and improve the air quality in cities. Back in May, a proposed ban on imports of low quality coal led to a significant reduction in lignite coal imports

Domestic Chinese coal prices have collapsed faster than global benchmarks, largely because domestic coal output continues to ramp up. Prices of 4,900 and 5,500 kcal/kg coal at Qinhuangdao have dropped by nearly 10% since the end of June while Australian Newcastle coal has come down only 1%, BofAML said.


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