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However, reduced costs and an assumed depreciation of the Australian dollar will lower the price required to achieve the equilibrium and limit the increase in benchmark contract prices, according to the department’s resources and energy quarterly report.
It forecast premium hard coking coal contract prices to average $116 per tonne fob Australia in 2015.
The first quarter’s benchmark was settled between Australian coal producers and Japanese mills at $117 per tonne while the negotiations for the second-quarter contract price are still continuing. Nippon Steel & Sumitomo Metal Corp has tabled a bid of $109.50 per tonne fob.
The department forecasts China’s imports of met coal to increase by 6% to 69 million tonnes in 2015 on continued growth in its steel production, though its demand had fallen 16% in 2014 to 65 million tonnes.
A source at a large Chinese trading house, however, told Steel First that he believed Chinese coking coal imports could fall by as much as 15% this year.
India will also see an increase in its coal imports as it invests heavily in infrastructure. The Australian department forecasts India to experience a 13.6% growth in met coal imports this year to 50 million tonnes.
On the supply side, most of the growth in global met coal exports is expected to come from Australia as US capacity gets shut down or consumed domestically, according to the report.
Australia’s met coal production is expected to grow by 5% to 190 million tonnes in 2015 as new production from Whitehaven Coal’s Maules Creek mine, the expansion at Peabody’s Metropolitan mine and increased output at existing operations will more than offset the closures of Vale’s Integra, Sumitomo Corp’s Isaac Plains and Glencore’s Ravensworth.
But from 2015-2016 onwards, the country’s met coal exports are projected to increase at an average annual rate of just 1.3% to 204 million tonnes in 2019-2020 as low prices have removed the incentive to invest heavily in developing new capacity.
Australia’s Department of Industry expects the metallurgical coal market balance to tighten from 2016 onwards as high-cost production capacity gets shut down and steelmaking activity in China and India picks up.