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Metallurgical/Coking Coal outlook - BMO Capital Markets
Date: 15/12/2016

BMO Capital Markets calculates that spot met coal prices have increased 237%, to over US$300 per tonne, over the last six months “on the back of policy-driven supply constraints in China and supply disruptions from seaborne producers.” The annual market shock was reportedly “driven by China’s policymakers restricting coal operations to 276 days per year from 330 days per year to cope with overcapacity and low prices.” China regulators subsequently announced that “all compliant and safe coal mines to operate at full capacity” until the “end of the heating season.”BMO Research notes there are a “few reasons to expect the met coal market to remain tight through early 2017.” Mine and mill inventory levels are reportedly at the “lowest levels since 2014,” which could “continue to support prices about US$250 per tonne.” Ongoing logistical challenges in China and the rainy season in Australia could also assist in underpinning the rally. On Nov. 22 BMO Research increased its price forecasts for met coal to an average of US$198 per tonne in 2017, and US$130 per tonne in 2018. Analysts expect the market to move back into surplus next year, and forecast 25 million tonnes of “incremental export supply from Australia, Mozambique, Mongolia, and North America, which more than offsets an estimated 10 million tonnes in additional supply cuts from China next year.” BMO analysts conclude that ultimately “China’s steel production, driven by export demand, depends on the growth of global demand,” and estimate that the Asian industrial leaders steel exports will decline by 2 million tonnes next year to around 98 million tonnes. Meanwhile, the U.S. and India each represent around 6% of global steel demand, and “Europe’s anti-austerity movement could be a welcome boost to steel demand.” Source : Northern Miner

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