COLUMN-Asian coal miners, traders face up to grim realities – by Clyde Russell (Reuters India – June 4, 2014)

Clyde Russell is a Reuters columnist. The views expressed are his own.

NUSA DUA, Indonesia, June 4 (Reuters) – “There is no skin left on my teeth to hang on with,” was the lament of a coal trader, expressing a sentiment echoed time and again at the industry’s largest gathering in Asia.

Normally coal miners, traders and shippers are a fairly optimistic bunch, their good humour likely shaped by a tough industry that is increasingly unloved across the world despite being essential to keeping the lights on.

But the mood at the Coaltrans Asia conference in the Indonesian resort island of Bali this week was subdued, and the question on everybody’s lips was how much lower can coal prices go.

At a roundtable session, a well-known analyst talking about the outlook for prices was mobbed, while an expert on valuing coal mines cut a lonely figure, underscoring that nobody is currently interested in investing in coal production.

The price of coal at Australia’s Newcastle Port , an Asian benchmark, fell to $73.89 a tonne in the week to May 30, down 14.3 percent so far this year and close to the 4-1/2 year low hit in March.

The price has almost halved since its post-2008 recession peak of $136.30 a tonne, reached in January 2011, making it easy to understand the pain being felt by miners and traders.

Of course, coal buyers, particularly those in India, are relishing the low prices and as one trader put it, they are enjoying kicking the supply side of the industry when it is down.

Indian buyers have been demanding longer payment periods, stretching the normal 30 days to 90 days, and then when this falls due, they have been insisting on only paying the current spot price, not the cost agreed three months earlier when prices were higher, according to one trader at the conference.

In a highly oversupplied market, miners, traders and shippers have little choice but to acquiesce and hope they can keep their heads above water for a little while longer.

During a conference session on pricing, the audience was asked pick the expected floor price for Newcastle coal using an electronic voting system, and the most popular choice was $70 a tonne, beating $65 a tonne into second place.

Since the majority of the participants at the conference are from the supply side of the industry, it was to be expected that they felt the bottom for prices is near.

But this view is based more on hope than any real sign that coal prices are ready to stage a rally.

For prices to rise it’s obvious there needs to be a spike in demand or a cut in supply or a combination of both.

Over the next few months it’s hard to see this happening, even as seaborne volumes remain robust.

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