Coking coal prices 'will remain lacklustre on inadequate supply cuts'

Seaborne metallurgical coal prices were expected to remain under pressure in the near term as the effects of production cuts announced earlier this year have yet to be felt, market insiders said this week.

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“It’s bearish sentiment all round,” a producer source told Steel First on the sidelines of an industry conference in Berlin, Germany, on November 17-19.

While many recognised that the market has been over-supplied, suppliers from different regions were hesitant about making commitments to any significant production cuts.

“Everyone was saying, ‘Oh, why don’t you cut first?’,” another source said.

While some pointed to the closing and idling of mines announced by several producers this year, which resulted in an output reduction of about 20 million tpy, many believed that this would only be felt by the market toward the second half of next year – or even later.

One reason given for this contention was because many closures or idling measures were only scheduled to come into effect by the end of this year. Another factor was that, even after production is halted, miners will still need to sell the large inventories they have built up, participants said.

In addition, some producers were increasing output at lower-cost operations to keep overall costs down, according to another producer source.

“The current supply cut is not going to be the solution [to low prices], because these tonnages are just coming up elsewhere,” he said.

Take-or-pay commitments were not helping the situation, he added, as the contracts can be for five to ten years. “Miners are stubborn little things,” the source said.

Sources speaking to Steel First on the sidelines of the conference forecast that seaborne prices will be flat or rangebound over the next six months, and that more production cuts can be expected “from everywhere”.

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