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Coal prices to strengthen on supply cuts

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World Coal,

BMI Research have raised its thermal coal price forecasts to 2020 on the back of aggressive production cuts in the global coal market, with China leading the way.

The research company, which is part of the Fitch Group, now expects FOB prices for ICE Newcastle 6000 kcal/kg coal to average US$53 per tonne this year compared to a Bloomberg consensus of US$50.5.

“We expect coal prices to continue forming a base of 2016,” BMI Research said. “For instance, Newcastle coal prices have averaged US$51 per tonne in the year thus far and we forecast an average of US$55 per tonne over the remainder of the year.”

The strengthening price for coal comes as coal produced in the two largest produces – the US and China – has fallen dramatically in recent quarters. According to BMI Research, Chinese production was down over 10% year on year in 2Q15, while US production has collapsed by around a third.

“A second annual decline in global coal output will drive a rebalancing of the seaborne market after several years of surplus,” said the research company. “We forecast global coal production to decline by 4.1% in 2016, following a 4.3% contraction in 2015.”

Looking ahead, BMI Research now forecasts prices for Newcastle coal rising to US$57 per tonne in 2017 and US$61 per tonne by 2020.

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