Metallurgical Coal to Turn into Surplus in 2025: BofA By Investing.com

Investing.com — Metallurgical coal is on track to move into a market surplus by 2025, analysts at BofA Securities said in an undated note on Monday.

Since 2021, the global coal market has faced a persistent supply shortage, but rising production from key suppliers such as the United States and Mongolia, combined with a slowdown in demand, particularly from China, is changing market dynamics.

As this transition progresses, BofA predicts that by 2025, the market will have turned into a surplus, a development that could put downward pressure on prices.

Currently, coking coal prices in Australia have already fallen to around $180 per tonne Free on Board, affected by sluggish steel production and increased coal supply.

Although prices have fallen, suppliers appear unwilling to sell below $200 a tonne, with freight costs between China and Australia factored in at $13.50 a tonne. This resistance to lower prices provides a level to reach coal prices.

However, if prices were to fall further, particularly in North America, supply cuts could occur as some producers may find it unprofitable to continue operating.

A key factor driving this anticipated surplus is declining demand from China, the world’s largest consumer of coking coal. The country’s steel industry faces significant challenges, including a continued decline in the real estate sector.

This decline led to lower steel prices and forced producers to cut production, in turn reducing demand for coal methane.

Despite the People’s Bank of China’s efforts to stimulate the economy, BofA notes that credit demand remains weak, limiting the potential for a sustained recovery in steel demand.

Meanwhile, India is becoming a critical driver of coking coal demand as the country focuses on infrastructure development and housing projects. India’s steel production is on track to grow 12% year-on-year, positioning India as a growing consumer of coal methane.

While this increase in demand is notable, BofA says it won’t be enough to keep the market from going into surplus in 2025.

Indian steelmakers continue to rely on blast furnaces, ensuring a steady need for coking coal, but even this strong demand cannot offset broader global dynamics pushing the market into oversupply.

Looking ahead to 2025, while the move to a surplus may limit price increases, there are several factors that could skew prices upwards in the near term. Demand in India remains robust and potential supply disruptions in Australia driven by weather events such as La Niña could limit production, providing temporary support to prices.