Australian Newcastle coal may slip below $60/mt on falling oil prices: S&P analyst
A further drop in Newcastle 6,300 kcal/kg GAR coal prices to below $60/mt FOB is possible as falling oil prices are resulting in cost savings for Australian producers and providing a buffer for them to accept lower FOB prices, Xavier Jean, a Singapore-based director for Standard & Poor’s said Friday, October 17.S&P, like Platts, is a unit of McGraw Hill Financial.
Similarly, Singapore-based Standard Chartered Bank analyst Serene Lim said: “The decline in oil prices would lead to cost savings from fuel. This would provide a buffer for the producers.”
On October 16, Platts assessed the daily 90-day price for Newcastle coal with a calorific value of 6,300 kcal/kg GAR at $63.65/mt FOB.
Jean said a 10% drop in oil prices provides a 2-3% improvement in the cash cost base of mining companies. He added that fuel costs typically account for 20-30% of a coal company’s overall mining costs.
Front-month Brent crude closed at $84.47/barrel on October 16. This is 21.6% lower than the January 2 close of $107.78/barrel.
“If companies see that their cost bases are reduced, they will keep on increasing their production. And the biggest cost reduction they are experiencing right now is the failing oil prices,” Jean said.
“It is not unrealistic to say that Newcastle prices could fall towards or below $60/mt FOB,” Jean said.
Lim of Standard Chartered said the cost saving resulting from the depreciation of the Australian dollar against the US dollar has also additionally allowed producers to absorb the impact of lower FOB prices.
Jean noted that the Australian dollar depreciated less so far this year compared to the depreciation of the currency in 2013.
The average so far this year of the Australian dollar exchange rate against the US dollar was 1.09. The average was 1.04 in 2013 and 0.97 in 2012.
An October 10 Deutsche Bank analysts note said the price of Newcastle 6,000 kcal/kg NAR coal was expected to fall below the $60/mt FOB mark in the next two to six months.
It said there will be a $3/mt impact from the depreciating Australian dollar, and $2/mt from the weak thermal coal demand for Australian coal in China, which imposed a coal import tax of 3-6% from October 15.
However, Deutsche Bank did not factor in falling oil prices in its price prediction.
Source: Platts
