With seaborne coal prices dropping to their lowest levels in four years, mining companies are taking a hit to their bottom lines. In a recent report, Bank of America Merrill Lynch suggests five reasons why the pain is set to continue:
- Exports from Colombia are likely to recover as industrial action ends
Strike action in Colombia has been a rare negative pressure on global coal supply. Bringing the country’s coal production back online will further exacerbate global oversupply.
- Producer countries remain slow to cut production
Australia and Indonesia are pushing record levels of production as new mines come online and long-term take-or-pay transport contracts in Australia make it difficult to cut unprofitable production.
- Chinese demand for imports drops as domestic prices dive
Chinese domestic coal production is up, driving domestic prices down. Infrastructure in coal producing provinces is also expanding, making it cheaper and easier to get coal to the markets in the coastal regions. The government has also started to implement policies to cut reliance on coal for electricity.
- The weak rupee is hitting Indian coal buying
The collapse of the value of the rupee against the US dollar has driven the cost of coal up to near record levels for Indian buyers.
- Stock levels at key exporting and importing hubs are at record levels
Chinese coal inventories remained high in June at 300 million t, according to BoAML, while at the Richards Bay coal terminal in South Africa, stocks hit record seasonal highs: a good indication that there is a lot of coal with nowhere for it to go at the moment.
Edited from various sources by Jonathan Rowland
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