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Coal price forecast revised down on weak China

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World Coal,

BMI Research has substantially revised down its thermal coal price forecast on the back of weaker-than-anticipated multi-year demand.

The research firm now forecasts average prices of US$51 per tonne for 2016 and US$52 per tonne for 2017. This compares to a previous forecast of US$59 per tonne and US$60 per tonne for 2016 and 2017 respectively.

“The key change to our demand assumptions has been a downgrade to our China coal consumption forecasts,” the company said in a research note. “Specifically we believe coal-fired power generation will decline over 2016 and 2017 and then register only slight annual increases thereafter.”

The revised price estimates from BMI Research come it at slightly below the Bloomberg Consensus forecasts for thermal coal prices but ahead of the ICE futures curve, where coal prices are tracking a more bearish trajectory with January 2017 contracts trading at US$46.7 per tonne as of 10 March.

Weakness in Chinese demand will be fail to be offset by Indian demand, where near-term import growth is expected to be modest as a result of ample stockpiles at Indian power plants and surging domestic production.

“Persistently low prices will result in a major contraction in global production growth,” BMI concluded. “After a 3.9% contraction in 2015, we forecast production to shrink by 1.4% in 2016. Output will grow by an annual average of just 0.9% over 2017 – 2019. This compares to annual growth of 3.2% over 2012 – 2014.”

Coal production in China, Australia, Indonesia and the US – which together accounted for 68.4% of the total in 2014 – will be hit hardest by supply cuts, BMI Research concluded, while India will remain a bright spot, along with Colombia.

Further risk to coal prices is posed by a slowing of coal-fired power plant build in Asia on the back of growing local opposition, financial restriction on coal projects from international lenders and increasing environmental pressure on Asian countries.

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