Coal markets remain vulnerable

A MILD short-term recovery in Baltic freight rates and a slightly stronger oil market have edged up coal prices for the first time since early November according to ANZ analysts, but the bad news is far from over.
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Blair Price

The latest commodity report head authored by ANZ senior commodity strategist Mark Pervan also noted the Australian thermal coal market picked up from heavy trading at the front end of the Newcastle free on board curve and from South Korean utility companies settling tenders.

However, with Xstrata Coal suspending its Oaky No. 1 longwall mine, the bank said reports of major cutbacks by coking coal producers “is a major ominous sign for semi-soft coking coal demand” and should lead to lower thermal coal prices.

“Newcastle prices look more vulnerable, having played more of the swing producer in the semi-soft coking/thermal coal markets,” ANZ said.

Latest figures have China’s November power generation falling 9.6% year on year, with the bank expecting these figures to get more attention into the new year.

“Heightened interest will be on rapidly declining Chinese electricity demand,” ANZ said.

If the slump in the nation’s power generation continues, ANZ indicated there could be negative impacts as China swings excess thermal coal supply into the export market.

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