European Coal Drops to 4-Year Low as Credit Suisse Cuts Forecast

Jun 23, 2014 6:59 am ET

June 23 (Bloomberg) -- European thermal coal fell to the lowest in more than four years as Credit Suisse Group AG cut its price forecast for the fuel.

The bank lowered its third-quarter price outlook for Australian and European coal by 6.3 percent to $75 a metric ton, and cut its fourth-quarter forecast by 12 percent to $75. Supply is expected to outweigh demand in the seaborne market through at least 2015, Marcus Garvey, an analyst at the bank, wrote in a report e-mailed today.

Coal for delivery to Europe next year fell to $78.40 a ton, the lowest since Sept. 15, 2009, amid reduced demand caused by warmer temperatures along with supplies from the U.S., Colombia and South Africa. Some power producers in Europe are also shutting coal plants as pollution rules known as the Large Combustion Plant Directive limit the generation of coal-fired electricity.

“We expect a structural downtrend in coal demand to reduce imports by a compound annual growth rate of 6 percent through 2017,” London-based Garvey said in the report. “Plant closures resulting from the Large Combustion Plant Directive and competition from renewable capacity will also continue to weigh.”

The European Union passed the directive to reduce emissions of sulfur dioxide, nitrogen oxide and particulates that cause so-called acid rain from industrial plants. Coal-fired power stations may fit equipment to limit these emissions or opt out of the directive, in which case they may operate for a maximum of 20,000 hours before closing in 2015.

Next-year coal has fallen 9 percent this year, and was trading at $72.35 a ton as of 11:36 a.m. in London, according to broker data compiled by Bloomberg.

U.S. Supplies

Credit Suisse cut its 2015 forecast for coal in Europe and South Africa by 3.6 percent to $80 a ton.

The bank also reduced its third-quarter forecast for South African coal by 6.3 percent to $74 a ton, and lowered its fourth quarter outlook 12 percent to $74 a ton.

Exports from the U.S. in April fell by 32 percent from a year earlier, Garvey said. Overseas shipments may total less than 40 million tons this year compared with 51 million tons in 2013, as U.S. coal-based power generators increase their consumption.

Any reduction in U.S. supplies should be covered by an expected 7 percent increase in Colombian exports to 78 million tons in 2014 and of about 9 percent to 85 million tons in 2015, according to the report.

The annual rate of increase in Chinese coal demand is forecast to drop to 1.7 percent in 2014 from 5.8 percent in 2013 and 31 percent in 2012, Garvey said. Coal-fired power may account for almost 80 percent of total generation this year, compared with more than 80 percent in both 2011 and 2012, he said.