Metallurgical Coal Market Forecast

Transition to Surplus by 2025

BofA Securities analysts predict that metallurgical coal will move into a market surplus by 2025, marking a significant shift from the ongoing supply deficit since 2021.

Key Factors Influencing Market Dynamics

• Supply Growth: Increased production from the United States and Mongolia is contributing to this change.
• Declining Demand: A notable decrease in demand from China — the leading consumer of coking coal — is also playing a crucial role.

Price Movements

• Currently, Australian hard-coking coal prices are around $180 per tonne, influenced by sluggish steel production.
• Suppliers are hesitant to sell below $200 per tonne, partly due to freight costs of $13.5 per tonne from Australia to China.
• Further price drops could prompt supply cuts in North America, where sustained operation may become unprofitable for some producers.

Challenges in China

China's steel sector is grappling with a dip in the real estate market, which has reduced steel prices and led to cutbacks in production, thereby lowering met coal demand. Despite the People's Bank of China’s efforts to spur economic growth, weak credit demand limits recovery in steel demand.

Emerging Demand from India

India is increasingly driving coking coal demand as the country invests in infrastructure and housing, with expected steel production growth of 12% year-over-year. However, BofA analysts believe this will not suffice to prevent a surplus by 2025.

Conclusion: Future Price Caps and Dynamics

While the transition to a surplus may limit price increases, strong demand from India and possible supply disruptions in Australia due to weather conditions like La Niña could temporarily support prices.

Summary

Metallurgical coal is expected to reach a surplus by 2025 due to increasing supply and declining demand, particularly from China, despite rising demand from India.