Industry Trend Analysis - Coking Coal: Weak Steel Production To Pressure Prices - MAY 2015
BMI View: Weak steel production growth will subdue global coking coal prices in 2015.
We expect coking coal prices to remain subdued as weak steel production growth will limit coking coal demand and prevent a price recovery in 2015. Coking coal prices have dropped by 24.4%, from January 2014 to May 2015, falling from an average of USD116.7/tonne in 2014 to USD88.1/tonne in May 2015.
The slowdown in Chinese fixed asset investment will weaken the country's demand for steel, resulting in rising steel inventories, which will subdue steel prices and disincentivize production, thus lowering demand for coking coal ( See: 'Steel: Oversupply To Drag Prices Lower', March 18). China, the world's largest coking coal consumer, saw coking coal imports fall by 12.9% year-on-year (y-o-y) in the first three months of 2015, following a previous 16.7% decline y-o-y in 2014. Chinese coking coal imports amounted to 66.4 million tonnes (mnt) over 2014, accounting for roughly 10.0% of domestic demand.
|China's Demand To Weaken|
|China - Coal Imports Growth y-o-y (%)|
Steel Supply To Outpace Demand
The global steel market will remain oversupplied as steel production growth, though weak, will continue to outpace weaker consumption growth. We expect the global steel market balance to post a 7.9mnt surplus in 2015. We forecast global consumption growth to average 2.9% y-o-y over 2015-2019, significantly lower than an average of 7.6% y-o-y over 2010-2014. A continued slowdown in Chinese fixed asset investment will be the key driver of this weakness. Chinese steel consumption, which averaged 47.0% of global consumption over 2010-2014, will average 2.4% y-o-y growth over 2015-2019, compared with 5.7% over 2010-2014. Our subdued consumption forecast is predicated on our below-consensus GDP forecast for China to grow by 6.7% in 2015, while the Chinese government expects GDP to grow by 7.1%.
|Weak Growth Ahead|
|Select Countries - Annual Steel Production Growth (%), Monthly|