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“On a freight- and quality-adjusted basis, around 20 million tonnes of US supply looks to be loss-making in a delivered Asia basis. With major Australian suppliers set to keep contract pricing around current levels, the main hope these producers have is that Chinese domestic supply cuts first,” Macquarie said in a research note seen by Steel First on Friday July 26.
“Either way, we would expect to see further supply reductions in both areas over the coming months,” the note read.
The bank said Australian exports have recovered from the Queensland floods of 2011, moving back above the 160 million tpy level seen in 2010 and 40 million tpy higher than that seen in the first half of 2011.
At the same time, US exports have maintained a level that is about 15-20 million tonnes higher than that seen in 2010.
“It is not new seaborne supply that is the problem in met coal. Rather, it is the return of existing supply,” Macquarie said.
On the demand front, global blast furnace output has been strong with Chinese output running up 6.8% year-on-year in the first half of 2013. Ex-China output, on the other hand, is down 1.1%.
“Even the push in blast furnace output this year has not satiated the available supply capacity,” the note read.
The third-quarter coking coal benchmark was settled at $145 per tonne fob Australia last month, down from the $172 per tonne fob agreed upon for the June quarter.
On the spot market, Metal Bulletin’s Coking Coal Index for low-vol material stood at $141.58 per tonne cfr Jingtang on July 19, compared with a high of $185.70 per tonne recorded on February 22.
Over 50 million tonnes worth of supply cuts are needed to bring balance to the metallurgical coal market, which has been oversupplied since late 2011, investment bank Macquarie said.