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Thermal Coal Prices Are Soaring

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Dave Forest

Dave Forest

Dave is Managing Geologist of the Pierce Points Daily E-Letter.

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Is A Coal Price Recovery Near?

Lower prices have had a mixed effect on commodities production. Metals like gold and iron ore have seen output stay stubbornly high -- with Platts reporting this week that iron ore exports from key producers Australia and Brazil are running near record levels, despite a plunge in prices.

Other metals like copper and platinum are starting to show production slowdowns. But news this week suggests that one commodity appears to be responding fastest to lower prices.

Thermal coal.

On Monday, the world's top coal-exporting nation, Indonesia, said that its production is in major decline. Having already fallen by double-digit percentages this year. Related: OPEC Keeps Up Production In August, Takes Over Market Share

Government statistics showed that Indonesia's coal production for January to August fell 15.4%, as compared to same period of 2014. With total production coming in at 263 million tonnes -- down from 311 million last year.

That means Indonesian producers have already taken nearly 50 million tonnes of supply off the market. And suggests that the full-year cut in production could be close to 75 million tonnes. Related: Midweek Sector Update: This Key OPEC Member Could Soon See Production Cuts

That's a significant amount for the global market. Especially given that Indonesia is one of the world's lower-cost production centers for coal -- and one of the few places that had been continuing to expand output over the last two years.

But that trend is now reversing. And if Indonesian miners are having trouble at today’s prices (which are running around $58 per tonne for the blended basket of Indonesian coals), it's a safe bet most of the world's coal miners are facing similar difficulties. Related:The Shale Delusion: Why The Party’s Over For U.S. Tight Oil

In fact, some estimates are that 80% of Indonesia's coal miners are now curtailing output. Suggesting that government projections on 2015 production -- which had been forecasting 400 million tonnes, down from 458 million in 2014 -- will likely have to be revised downward.

All of which shows this is a market that's quickly changing direction. It may take some time for price effects to trickle through, given the incredible ramp-up in Indonesian production of late (66% growth over the last five years) -- but the right things are starting to happen to seed a recovery.

Here's to mining the good stuff,

Dave Forest

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