Any forecast on commodity pricing is always interesting.
Commodity price movements are ruled by interplay of demand and supply forces, which vary frequently, thus pose uncertainty in future outlook.
Even then, a tentative prediction on Thermal coal prices in the second half of this year is done on the basis of the possible influence of the La Nina effect.
Prices of Thermal coal might rise by as much as 50% if heavy rainfall caused by the La Nina effect hinders coal mining in the key regions of Indonesia, Australia and South Africa. If the La Nina effect takes place, coal supplies from these regions will shrink, and with China cutting down coal production, the overall supply in the Asian region will decline to trigger price rises.
Coal output in China had fallen by 15.5% in May’16 on year-on-year basis, resulting in the benchmark price of the country going up to Yuan 415/tonne, the highest in this year. The benchmark price could reach upto Yuan 450/tonne by Dec’16 due to the supply contraction, as many experts believe.
The Chinese government has already asked coal mines to reduce the operating rates to 84% of the respective production capacities. The government also has mandated coal mines in that country to reduce the annual working days to 276 from 330.
On the other side, the possible La Nina effect might prove to be a boon for Coal India Limited (CIL). The possible shrinkage in coal supply across the Asian continent might help CIL to find export markets to dispose-off its excess inventory.
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