Metallurgical coal prices are expected to continue to drop over the course of 2014 in response to the continued surplus in global supply, Australia’s Bureau of Resource and Energy Economics said in its latest Resources and Energy Quarterly (BREE). Benchmark contract prices for high-quality metallurgical coal delivered in the Q2 settled at US$120/t, down from US$143/t in Q1. For the year as a whole, BREE expects contract prices to average around US$123/t.
Metallurgical coal benchmark prices, FOB Australia. Source: BREE Resources and Energy Quarterly (June 2014).
“At prevailing prices many metallurgical coal producers are unprofitable and with current cost structures these prices are unsustainable,” said the report, noting that some companies – largely in North American and Australia – have opted to close capacity in response, while others are changing their product mix to focus on thermal coal where margins are currently higher.
Price recovery is expected to begin to occur in 2015 – but slowly, as take-or-pay contracts continue to prevent some companies from reducing output and production continues to grow at a faster pace that demand. BREE expects average contract prices for 2015 to drop again by 1% to US$121/t.
Written by Jonathan Rowland
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