Saturday, October 25, 2014

"Miners Shovel Coal Into Flooded Market" $WLT

Miners are shoveling more metallurgical coal on to a global market already awash with the steelmaking commodity, delaying any recovery in prices that are at multiyear lows.[...]

BHP Billiton Ltd. became the latest company to unveil record output of metallurgical coal, after opening new mines planned years ago when prices of the commodity were at a peak. But the extra supply is far outpacing demand in countries such as China and Japan, which produce much of the world's steel. Miners' willingness to dig up more coal despite lower prices mirrors a similar push in iron-ore where miners are investing billions of dollars and running their operations harder in a bet that their enormous efficiencies of scale will allow them to profit. However, critics say the strategy risks creating a supply glut of each of the raw materials used to make steel that will take years to clear.[...]

The supply surge is weighing on prices, and forcing analysts to redraw their expectations of a recovery. Many companies with unprofitable mines are opting to wait out the downturn, rather than shuttering production and laying off staff. [...]

"We are forecasting a surplus again in coking coal in 2015," said Christopher LaFemina, an analyst at broker Jefferies who estimates the market oversupply will double to 20 million tons in 2015 from 10 million tons in 2014. Consequently, the potential for coal prices to rise "is likely to be much more limited than we had previously anticipated," he said.
Isn't the potential for coal prices to rise not just unlikely, but in fact more likely for prices to fall, if the size of the met coal surplus is going to increase next year?

The implications for high cost miners are so grim that many in the industry seem to prefer to hide their heads in the sand about what's coming.

1 comment:

Stagflationary Mark said...

The Global Recovery's "Dirty" Little Secret

The chart shows the export price of metallurgical grade coal.

It would seem that the Fed can't seem to shovel quite as fast as the miners. ;)