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Thermal coal prices hit their lowest levels in two years

Steel News - Published on Wed, 18 Jul 2012

The bad news continues in the thermal coal market. After falling significantly in recent weeks, prices are down 30% YoY and recently hit their lowest levels in two years. Key factors include slowing Chinese growth, a shift to cheap natural gas, and tough environmental regulations.

Strategists at Bank of America Merrill Lynch noted that the market has moved into surplus, which means that miners are likely to cut production and delay expansion plans. The recent collapse of the highly touted Patriot Coal Corporation could be a sign of things to come.

The strategists said that but don\'t expect supply cuts to create a quick turnaround in prices. They noted that it will take time and discipline to work through the glut in the market.

They wrote in a note titled \'King Coal no more\', that \"While we see a stabilization in prices at the current levels, we do not expect a sharp price recovery on the back of output cuts.\"

The strategists expect a surplus of close to 2 million tonnes in the market in 2012 as compared to a deficit of almost 8 million tonnes in 2011. And while they think the deficit will shrink in 2013, they do not expect it to disappear.

In light of the weakening market, analysts are taking a more cautious view of the thermal coal equities as well. On July 16th 2012, BMO Capital Markets analyst Meredith Bandy downgraded both Alpha Natural Resources Inc (to underperform from outperform) and Arch Coal Inc (to underperform from market perform). In both cases, she noted relatively high debt levels, deteriorating margins, and weak demand for coal from the Appalachian region of the United States.

Source - National Post


Posted By : admin on Wed, 18 Jul 2012
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