Potential supply cuts have the price of metallurgical coal — the kind used to make steel — poised to do something it hasn’t done since October 2013: Rise.
The benchmark contract for the coal may gain by a few dollars in the second quarter amid speculation that China is curtailing supply amid high costs, Mark Levin, a coal analyst at BB&T Capital Markets in Richmond, Virginia, said in a note to clients. An increase would pause a rout that began in 2011 when prices peaked at $330 a metric ton.
Metallurgical coal prices have plunged due to a global oversupply and slowing demand out of China. The collapse has ravaged USA coal miners including Walter Energy Inc., Alpha Natural Resources Inc. and Arch Coal Inc. All three companies placed big bets on prices remaining high. And all three have filed for bankruptcy in the past year.
Levin said a “significant” amount of Chinese metallurgical coal is expected to come out of the market because of high costs and the government’s push to close up to 150 million metric tons of annual crude-steel production capacity by 2020. If the prices don’t rise, they’ll at least “end up being no worse than flat,” he said.
In calling a potential price gain, Levin also cited Consol Energy Inc.’s sale of a coal mine in southwest Virginia for $420 million. The buyer, Coronado Coal LLC, is backed by the Houston-based Energy and Minerals Group. Coronado has also bought metallurgical coal mines from Cliffs Natural Resources Inc. “They must think a big recovery is in the offing,” Levin said.