Thermal is wrecked: Chinese inventories climb to 2008 financial crisis levels

A steep drop-off in demand from Asia – last week it was reported that at least 30 coal carriers with unsold cargo are floating off China's coast – exacerbated by high inventories thanks to a mild northern hemisphere winter and a surge in US exports have led to a collapse in thermal coal prices.

Ratings agency Fitch said on Thursday it expects thermal coal price to stay under pressure into next year according to the Hindu Business Line and warned  sustained low coal prices "could shift buyers from low-rank coal to higher-grade coals and, thus, negatively affect both demand and the realised prices for low-rank coal."

Irwan Budiarto, PT Bahana Securities analyst writing in the Jakarta Post is even more pessimistic and sees prices steadily decline to average $80 a tonne in 2014, down from a predicted $85 next year.

In China’s Qinhuangdao, the world’s largest coal port by capacity (9m tonnes), inventories have exceeded levels last seen in late 2008 during the height of the financial crisis. At that time, thermal coal prices dropped sharply. Last week, Qinhuangdao’s inventory reached 8.2m tones, up 1.1m tones in just 10 days, suggesting lack of demand. It is clear that thermal coal prices have only one way to go: Down. 

Marketwatch quotes   Norman Mbazima, chief executive of Anglo American's Thermal Coal division as concurring with the view: "In the short term, we will have a bearish market," Mbazima said on Thursday, although he believes longer term prospects remain bright. reported earlier this week analysts now expect "meaningful" cutbacks in production to support prices and that "coal executives believe that as much as 10 per cent of the production serving the seaborne market could be losing money at current prices"

Coal for power generation at the port of Newcastle in Australia, the benchmark for Asia, crept back above $88 a tonne on Thursday after hitting its lowest level since June 2010 at the start of the week.

Thermal coal price is down more than a fifth since the start of the year. The post-financial crisis low for thermal was March 2009 – during that month coal averaged $65.36.