Detailed in its commodities report, Macquarie noted bearish news was pervading the Atlantic markets.
This includes recent US Energy Information Administration data confirming 175 million tons of stocks at the end of March, up 7% from February and up 19% from 147Mt in March 2008.
The analysts also noted the comments of James River Coal chief executive officer Peter Socha, who expects a soft US market for the next 12-18 months as stocks are drawn down and demand is consequently subdued.
“The European utilities presenting at the conference also confirmed that their stocks were at elevated levels and that these stocks would slow coal procurement through to 2010,” Macquarie said.
The bank has noted an Indian effect on South African prices as they move closer to parity with delivered European prices.
Macquarie quoted senior trading manager Kaamil Fareed of Indian trading group Coal & Oil, who said at the conference “the party is still on”
He is expecting Indian power demand to grow 8-10% per annum, while Coal & Oil is projecting 100 million tonnes of thermal coal imports by 2010 from the current level of 40Mtpa.
The most bullish assessment of Chinese demand was seen from Philip Gasteen, the head of marketing and logistics at Asian coal and electricity producer Banpu.
“He suggested that around 55Mt of thermal coal is due to be delivered into China this year under recently completed deals,” Macquarie said.
“This would drive imports 20-25Mt higher, while export volumes are likely to fall 15-20Mt.
“Thus, he sees China’s net imports increasing by 40Mt this year.”
The bank said recent trade data supported this view as it confirmed 9.2Mt of imports for April, including coking and thermal coal, an increase of 3.4Mt (60%) from March.
“Chinese demand on this scale could soak up excess supply and keep the thermal coal market relatively balanced.
“To date, this China effect has kept Newcastle prices trading in the $US60-65/t range and physical availability out of Australia appears to be tightening.”
Macquarie said European prices looked more vulnerable and were currently trading at a discount to Newcastle prices with “few apparent positive price catalysts”