Coal prices expected to firm up in 2016

Coal prices are expected to remain subdued into 2015 as supply outpaces demand. Soft demand in China combines with strong mine ramp-ups around the world, which force additional cuts in output in the USA, according to Bank of America Merrill Lynch (BoAML).

BoAML recently lowered its 2015 average Newcastle thermal price from US$73/t to US$65/t, but a new six per cent import tax for Australian coal into China may further depress this level.

Further protectionist policies from China or subdued economic growth could herald further demand contraction and impose downward pressure on the coal price in 2015.

However, in 2016 the analysts expected a more balanced market with a small deficit, which is forecast to increase the year after. As a result, seaborne thermal coal prices are envisaged to firm up in 2016 to an average of US$72/t, rising further to US$82/t in 2017.