Citi cuts thermal coal price estimates as supply zooms

Weak demand in Europe and China to hit prices

Coal prices are likely to fall this year, owing to low demand and increased supplies. Citi Research has lowered the price estimates of global thermal coal for this year and the next, citing increased supply and subdued demand in India and China, the key coal-importing nations.

Citi's commodity research team cut its coal price forecasts for 2013 and 2014 by six per cent and 15 per cent to $89 a tonne and $94 a tonne, respectively. Earlier, the price was estimated at $95 a tonne for 2013 and $111 a tonne for 2014. Citi said the subdued demand in the European and Chinese markets, along with oversupply of 31-41 million tonnes (mt) in 2013-14, would reduce prices further.

Chronic oversupply
"The thermal coal market is being tested to the downside and the market appears to be in chronic oversupply. Supplier discipline is required to restore the market balance, which is not forthcoming," said a Citi Research report.

India, China and Europe are the key drivers for coal prices. Last year, imports from Europe, China and India rose. But this year, the sluggish pace of economic growth in China and the lower-than-expected demand from Europe is likely to hit coal demand. However, India is likely to remain an importer of coal, accounting for about 25 per cent of the total exports from Indonesia.

"China remains the price-setter for thermal coal prices, in our view," the report said.

Coal exports from Indonesia to China and India stand at 13-14 mt and eight to nine mt a month, respectively. Citi estimates 31-41 mt of oversupply in 2013-14.