Coal futures drop to $50/t first time since 2003 as Goldman calls peak
SINGAPORE – Coal futures are trading at $50/t for the first time since 2003 as the commodity downturn deepens, and US investment bank Goldman Sachs says the resource will never gain enough traction again to lift it out of its slump. Tumbling coal and metals have weighed heavily on mining shares this week, led by the world’s biggest thermal coal producer Glencore, which saw its stock fall to a record low of 106.35 pounds ($163.19) on Tuesday. Glencore shares are down 82.1% since the firm was listed in 2011 and two-thirds lower than at the start of this year. Benchmark coal futures hit historic peaks in 2008, when coal traded above $200/t, and like most commodities has not returned to such heights. Yet the plight for coal has been worse than for other fuel as its latest downturn started in 2011, while the current slump for oil and natural gas only started in 2014. Coal’s fall has also been steeper, plunging 77% since 2008 and 63% since 2011, compared with 69% and 60% drops for oil since the same two years. Asian natural gas prices (LNG) are down two-thirds since their peak, which came later than in other commodities, in 2014. Goldman Sachs said coal is in terminal decline. “Peak coal is coming sooner than expected,” Goldman said in a note to clients this week, adding that its consumption would peak before the end of the decade. “The industry does not require new investment given the ability of existing assets to satisfy flat demand, so prices will remain under pressure as the deflationary cycle continues,” Goldman said. As a result the bank, which sold its coal mines in August, has cut its coal price forecast. Goldman set its forecast for Australian thermal coal at $54/t for 2016, $52 for 2017, and $51 for 2018. “We also reset our long-term forecast to $50/t, down 23% from $65/t, to reflect what we see as the remote likelihood that the market will tighten ever again,” it said. Coal’s weakness started in developed economies, where natural gas and renewables eroded its market share, but spread in 2014 to emerging markets like China and India – which rely largely on coal to meet energy demand. The biggest impact has come from top commodity consumer China, where the economy is now growing at its slowest in decades, pulling down January-August coal imports by nearly a third from a year ago, with talk of China becoming a net coal exporter.
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