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Dave Forest

Dave Forest

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

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We Just Got 3 Signs of A Turnaround In Coal

It seems to be the darkest hour in the thermal coal market right now.

Prices in key markets like Australia have dipped to multi-year lows. With benchmark Newcastle coal currently going for near $70 per tonne--down nearly 50% from the peak of $140 we saw in 2010.

Bleak reports are also coming from the world's largest coal exporting nation, Indonesia. Where buyers from big consuming nations like China have been almost completely absent over the past weeks.

But amid all the doom and gloom, we're getting more signs that the global coal market is in the process of righting itself.

In Indonesia, for example. Where government officials said late last week they are serious about cutting production and slowing exports.

Regulators said they expect to issue new coal rules in July. Which could include restrictions about which ports exporters can ship through. As well as stricter documentation for cargos shipped abroad.

The rules are reportedly an attempt to secure more coal supply for domestic use. With officials saying they expect Indonesia's coal demand from the local power sector to rise by 13% next year.

Fellow coal exporting nation Australia also appears to be headed for production curbs. Although mostly of an economic nature.

Estimate of late are that half of producers in the coal-intensive state of Queensland are now operating at a loss. And that appears to be prompting a slowdown in production growth.

Exact figures were released from Queensland's state treasurer last week. Forecasting that production for the current fiscal year (ended June 30) will "hit 200 million tonnes." However, estimates for production in fiscal 2014-15 are pegged at just 202 million tonnes. Implying that the rapid expansion of mining capacity we've seen here over the last few years is now over.

A final note on the sector comes from South Africa. Where the world's largest coal terminal--Richards Bay--said last week that it is shipping record amounts of coal to energy-hungry India.

The port sent 64.4% of its coal exports in May to the "southern Asia" region--where India is the anchor consumer. Amounting to 3.6 million tonnes. The highest volume ever recorded.

This suggests Indian coal buying remains robust. If that market stays strong, while production in places like Indonesia and Australia flags, we could well be seeing the stage set for a recovery in global prices.

Here's to global signposts,

By Dave Forest




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