In particular, Wood Mackenzie analyst Joe Aldina gave an excellent overview of both markets and provided attendees with an idea of when they may start to "turn the corner." For metallurgical coal, Aldina said that the market is still a few years away from getting out of the woods, but he does believe conditions will improve soon.
Aldina wasn't hesitant to blame our neighbors down under for oversupply. He noted that Australia is slated to increase its output to 52 million metric tons (MT), a stark contrast to what's happening in other countries around the world. The analyst is calling for the US "to cut 11 million MT of production in 2014," and expects Canadian met coal exports to come down on the back of Walter Energy's (NYSE:WLT) shutdown of some of its operations in British Columbia.
Aldina blamed fixed costs and take-or-pay agreements for "distorting the market and making the shutdown decisions particularly hard in Australia," but did concede that "Australia is not the only bad actor." He added, "the US remains stubborn in the face of low prices, and exports should have come off quicker."
Another factor to consider is that Chinese domestic supply is up slightly this year, meaning that imports into the country have become more difficult. "Coke exports from China have reached an annualized pace of 8 million MT," Aldina said. However, he doesn't see that supply as a material long-term problem, and cited variable coking coal prices as the reason China won't end up being a primary supplier of coking coal.Demand "For met coal demand, it's still China and India in the driver's seat," Aldina said, specifically stating that China is leading demand in the medium term, with India set to overtake it around 2020. To be sure, the key steel-making ingredient is critical for growing economies and expanding infrastructure, making coking coal extremely important for those two countries. Long term, the analyst sees "a meaningful increase in traded seaborne met coal volumes — 100 million MT out to 2035."