Coal oversupply to cap prices to 5-year-low

The short term looks gloomy.

Coal markets are awash with the fossil fuel as supply rises and demand comes under pressure, which it is likely to push prices for the commodity near the lowest in five years, reports show.

According to data from UBS AG and Bank of America, published by Bloomberg, exports are not expected to move up much, even with a higher seasonal demand for coal as the Northern Hemisphere heads into winter.

The forecast average price of coking coal, used for steel making, is expected to stay around $125 a tonne for the rest of the year, compared with $159 in 2013.

Outlook for thermal coal, used mainly for energy generation, is not much healthier. The Australian and New Zealand Banking Group forecasts an average price this year of $74 per tonne, against $84 a year ago. ANZ Research says the situation is “unlikely to improve in the near, or medium, term” and has downgraded price estimates for the next three years.

Coal at Newcastle, the Asian benchmark price, dove last month to $67.05 a ton, the lowest since September 2009, Bloomberg reported. The dark combustible closed at $68.10 during the week ended Aug. 1, well below $72, the figure at which much as one fifth of global exports lose money, according to Morgan Stanley.

While the short-term estimates seem quite gloomy, ANZ is a tad more optimistic in the longer-term and it says that reduced capital expenditure on new mine capacity in Australia and Indonesia will “plant the seeds” for a tighter supply backdrop and price recovery in 2016 and 2017.

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