Blog
Nemo: HK - based macro trader who deals trades in commodities
So assuming China “rebalances” and doesn’t continue with 45% of GDP coming from investment directed into heavy industry that is power intensive like aluminum, the party is definitely over for the coal sector. At the very best its no growth for companies that export coal to China. The problem is that even that outcome is too bullish by a significant margin because China is producing vastly more coal domestically and is rapidly building out the rail infrastructure to move it from mines in Inner Mongolia and Shanxi to coastal areas. Bernstein in particular has been pretty clued into this and it isn’t hard to see why China would do this: Mongolian met coal prices are roughly half of the seaborne market as per this dispute about the Erdenes TT mine shows. Thermal coal prices out of Mongolia are similarly cheap and as a landlocked country Mongolia does not have a lot of pricing power. So when you do the coal market balance you seaborne imports dropping off fairly quickly from 2H 2013 onwards and that is assuming China grows at around 7.5% pa.
He doesn't mention the thermal coal reserves in Xinjiang, but all the more reason to think his onto something . . .
BARRONS
Credit Suisse says increased supply from Australia will cap price upside (this is referring to MET COAL).
Record China imports unlikely to excite coal market
However we do think it is worth noting that in this month's channel checks, our China Metals and Mining team has seen some signs for a thermal-coal price recovery in the coming months, driven by lower inventories and improving demand. We believe if we do see an uptick in global thermal-coal prices (API2 [delivered price to northwest Europe] currently sub $90 per metric ton), this could lead to improved sentiment for the group, with Peabody the most direct play.
Record China imports unlikely to excite coal market
Reuters
Clyde Russell: Clyde Russell is a Reuters market analyst.
The real difference between coal and iron ore is the outlook for supply, with iron ore still potentially slightly constrained, especially if Indian exports remain depressed due to a crackdown on illegal mining and rising domestic consumption.
Coal supply stands to exceed demand for a second year in 2013, with Barclays estimating an additional 32 million tonnes will be available this year.
However, if China's appetite for imported coal grows at the same rate in 2013 as it did last year, this implies an additional 65 million tonnes.
Even a slackening to half of 2012's pace would still see China absorb the entire available additional coal.
...
It's also probably the case that China's appetite for imports is because prices are low, making imported coal competitive with domestic supplies.