Global thermal coal prices may continue to remain at
lower levels till early next year due to a drop in demand from China and India,
said a Fitch report on Wednesday.
The price of thermal coal (5,500 kcal coal at
Newcastle Australia on a free-on-board basis) hit a two-year low of $87 (Rs
4,785) a tonne in June from $142 a tonne recorded in January last year.
However, in spite of fall in prices, coal imports to
India have fell on a month-on-month basis- India has imported 1.4 million
tonnes of coal from South Africa's Richards Bay Coal Terminal (RBCT) in May
i.e. down from 1.6 million in April. Dollar sensitivity could be one of the
reasons behind this.
Besides that, the Coal prices were also hit by an
increase in production and exports from countries like Indonesia & US where
cheap natural gas replaced coal used in power generation.
Coal prices could only recover if demand from key
importers i.e. China and India improves. India's dependence on imported coal
has increased as domestic production has been hit. In China, thermal coal fired
power represents more than 70 per cent of the country's energy needs. Thermal
coal demand from China would lift again following a sufficient policy easing by
the Government, it said.
However, on the supply side, high-cost coal
producers are exposed to various business risks as coal prices fall
near or below the marginal cost of production. Many Australian producers have
high cash costs of production. Such operators will be significantly affected if
prices remain low for an extended period.
At the same time, sustained low coal prices
could shift buyers from low-rank coal to higher-grade coals and, thus,
negatively affect both demand and the realised prices for low-rank coal, said
Fitch.
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