Coal prices to remain depressed
Coal prices continued its declining trend in CY13 as average prices of Richards Bay (R-bay) has dropped significantly by 13%YoY to US$81/ton in CY13 as compared to US$93/ton in previous year. The drop in prices has been mainly over supply in international market and Sluggish economic growth in China.
On QoQ basis, R-bay price have surged massively by 16%QoQ to US$85/ton in 4QCY13 against US$73/ton in 3QCY13 as coal demand goes up in winter season. Going forward, we expect coal prices to be range bound (US$70-85/ton) in CY14.
China thermal coal imports to support Newcastle & Richard bay prices
China thermal import has increased enormously in previous year. China solely imported 239mn tons of thermal coal in Nov-13, highest in last 4 years. The share of Australian coal (New castle) in total china imports has increased to 33% in Nov-13, which was 24% year ago. Moreover, the share of thermal imports from South Africa (Richard Bay) has remained unchanged at 5% in Nov-13. The Chinese government’s decision to ban low quality imports has adversely affected the share of Indonesia and USA as their share in total thermal import has declined to 25% and 3% respectively.
Strong US$ supporting price cut
Apart from declining coal prices, local currencies of major thermal coal exporting countries have depreciated significantly in previous years. South African Rand (ZAR) depreciated by 19%YoY against US$ in CY13 along with Australian dollar (AUD) which slipped by 9%YoY against green back. However, FED’s decision to further taper stimulus (reduction in bond buying) will give room to mining companies to reduce the prices (In case of depressed demand) as US dollar will appreciate against fore mentioned currencies.
Stabilizing PKR to be beneficial for cement manufacturers
According to research analyst Kumail Chevelwalla, Pakistani cement manufacturers are still reaping benefits from low coal prices despite PKR depreciation. Average coal price per ton was PKR8,688 in CY12 which further reduced to PKR8,210 in CY13 regardless of 5% depreciation of Pakistani rupee. On the flip side, the rise in international coal prices in 4QCY13 has pushed up the prices to PKR9,111 (up 19%QoQ) from PKR7,660 recorded in 3QCY13. However, we expect the coal prices to be range bound in CY14. Further, anticipation of increase in reserves in upcoming months will reduce some pressure from local currency, hence beneficial for importers.