Coking coal meltdown

WITH coking coal hitting six-year lows, Peabody Energy CEO Greg Boyce is expecting Australian mine closures during 2014.
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Peabody Energy chairman and chief executive officer Gregory Boyce

Blair Price

According to The Australian, Platts reported that Queensland spot coking coal prices hit a six-year low of $US127 a tonne last week.

The Shanghai-based Freight Investor Services coking coal spot price was worse, posting a low of $124.5/t on Friday.

While most coking coal is not sold on a spot market basis, Macquarie Private Wealth signalled there was trouble ahead for the commodity about 2.5 weeks ago.

“With the Q1 2014 hard coking coal settlement at $143/t the lowest in the history of quarterly contracts, the stage is set for another tough year in 2014,” MPW said in an Australian Mining report.

“In our view, the impact of strong supply growth over 2013 will see a considerable hangover this year, with sustained price recovery looking longer-dated.

“We have reduced our hard coking coal price forecast for 2014 by 8% to $147/t, and 2015 by 13% to $156/t.”

While Peabody is not foreseeing any significant impacts to its relevant Australian operations, such as the North Goonyella longwall mine, its CEO Boyce believes that some competitors are losing money and could close down operations this year.

“I would have to say that it’s our view that in today's current pricing there is still production coming out from both the U.S. and Australia that is not sustainable,” Boyce reportedly said in response to an analyst’s question last week.

“And we should see those rationalisations continue to unfold during the course of 2014.”

Boyce expects the pendulum to eventually swing back to metallurgical coal producers.

“We have always maintained that in order to be able to attract investments in the met coal sector that pricing was going to have to be say $200 a ton from new capital and greenfield projects,” Boyce said.

“So at some point here through 2014, end of 2015 we are going to have demand exceeding supply and that we're going to have a period of time where we're going to have a supply shot in the marketplace until new capital is sanctioned and new projects are built.

“Our view is that’s not going to happen until people’s views, our own views of that pricing is going to be at a higher level for a longer period time.”

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