26/09/14 – Metallurgical Coal at 6-Year Low as Chinese Demand Slows

The quarterly benchmark price for metallurgical coal dropped to a six-year low, according to Doyle Trading Consultants LLC, amid a slowdown in Chinese demand for the steelmaking ingredient.

Australian coal producers and Japanese steel mills agreed to a fourth-quarter price of $119 a metric ton, down a dollar from the third quarter, Grand Junction, Colorado-based Doyle Trading said in a report yesterday.

Chinese imports in August were 39 percent lower than a year earlier, according to customs data, amid a glut of domestic steel. Iron ore demand is also suffering, with prices at a five-year low.

The coal settlement dashes hopes for a rebound in the price, which is down 64 percent since reaching $330 a ton in 2011. U.S. producers will have to continue focusing on cutting costs and potentially idling more unprofitable mines, said Daniel W. Scott, an analyst at Cowen & Co. in New York.

“We expect further met production curtailments to continue into 2015,” Scott said in a note yesterday.

Producers of coking coal, as the commodity is also known, have already announced as much as 30 million tons of production cuts this year, or almost 10 percent of global seaborne supply, St. Louis-based miner Peabody Energy Corp. (BTU) said Sept 18.

Shares of U.S. coal producers dropped in New York yesterday. Walter Energy Inc. (WLT) declined 4.9 percent to $2.13, its lowest in at least 19 years. Alpha Natural Resources fell 4.7 percent, Arch Coal Inc. (ACI) 2.7 percent, Cliffs Natural Resources Inc. (CLF) 8.7 percent and Peabody 3.4 percent.

Weaker Aussie

The latest contract price could have fallen to $112 because of a weaker Australian dollar, Doyle said. The fact that it didn’t may reflect concerns a steeper reduction would trigger another round of supply cuts before those already announced had time to take effect, Doyle said.

The “whisper number” for what the settlement would be was closer to $115 a ton, said Jeremy Sussman, an analyst for Clarkson Capital Markets in New York. While the metallurgical coal market is still weak, “the sky is not falling” either, he said in a note yesterday.

The Chinese price for iron ore is at its lowest since September 2009, according to data from Metal Bulletin Ltd. Global output of iron ore will exceed demand by 52 million tons this year and 163 million tons in 2015, according to Goldman Sachs Group Inc.

Source – Bloomberg.com