The “sky-high metallurgical and steel prices” of 2018 will be rebalanced in the coming year, while the market for thermal coal is expected to continue on an uncertain and volatile course, according to Wood Mackenzie’s 2019 coal outlook distributed Jan. 22.

A recent trend of falling steel prices is expected to be exacerbated by economic headwinds that will push margins lower in 2019, “removing some of the froth from prices in the premium hard coking sector,” the energy and research consultancy wrote. Meanwhile, government intervention in China is expected to ripple through an uncertain global market for thermal coal, demanding some tough decisions from suppliers, investors and politicians.

Metallurgical coal outlook

The global economy is slowing after a strong 2018, Wood Mackenzie warns, with hints of weakening global trade and a manufacturing slowdown in the U.S., Europe and China. Metallurgical markets could be heavily impacted if a cyclical downswing is driven further into a recession by concerns about political uncertainty.

The degree to which tighter steel margins impact metallurgical coal producers and cokemakers in 2019 may still largely be in the hands of China. The country’s direct intervention in the supply of coke and metallurgical coal is a dominant force in global pricing.

“The Chinese coke industry has come under severe pressure since the release of a new reform program in July 2018, demanding the elimination of excess coke capacity and improvements to pollutant emissions,” the outlook states. “We expect the focus on capacity removal to harden in 2019 and think structural changes in the coke sector will become more visible.”

An uptick in Chinese coal mining accidents in the second half of 2018 is also expected to draw government attention and possibly prompt increased safety measures that could affect production. Wood Mackenzie also expects China will cap total seaborne coal imports at 2018 levels with production control measures to be implemented from time to time and possibly at short notice.

While producers of all types of coal in the U.S have been hesitant to invest new capital in supply, Wood Mackenzie expects global coal producers to aim for an additional 20 million tonnes of seaborne metallurgical coal mine supply. Most of that output growth is expected to come from non-greenfield projects as producers look to brownfield expansions, recovery of output from operating mines and restarted production at idled mines.

Source: SPGlobal.com