Coal Outlook 2015: Material Recovery In Pricing Still A Few Years Out
2014 hasn't been the best year for the coal market. Next year, Joe Aldina of Wood Mackenzie expects to see more high-cost supply come out of the market, but his firm isn't calling for a material recovery in coal prices for another couple of years.
To be sure, it hasn't been the best year for coal. Both the thermal and metallurgical spaces have been plagued by oversupply and falling prices, and continued cost cutting on the production side has led to an ever-dropping floor. Both met coal and thermal coal hit multi-year lows in 2014, with prices falling to around $120 and $65 respectively. According to the Financial Times, met coal has lost 16 percent this year, while benchmark Australian thermal coal has fallen 25 percent. And although Glencore (LSE: GLEN) recently said it will halt its Australian coal production over Christmas in response to oversupply, it's definitely the exception to the norm. Demand has taken a hit too. President Obama continued his "war on coal" this year, bringing into effect new carbon emissions rules set out by the US Environmental Protection Agency. While events such as the shortage of coal in Ukraine and the possibility that India will open up to commercial coal mining made headlines this year, they clearly haven't been enough to boost prices. Meanwhile, as Wood Mackenzie notes in a report on what to look for in 2015, China is moving towards "cleaner coal consumption," and power companies have been ordered to cut imports by 25 million tonnes next year. While China definitely needs coal, there's uncertainty over what the future will hold in that country. Looking back, Wood Mackenzie analyst Joe Aldina said he isn't overly surprised with the state of the market this year. He hopes to see more high-cost supply drop out of the market next year, and also said that 2015 could be "an interesting year for deal making" in the sector. Overall, he suggested that while a material recovery in coal prices is likely still "a few years out," for the long term, well-capitalized investors who are comfortable taking some risks could find opportunities in the coal space.