Rising demand, fall in lending is supporting coal prices: Fitch

The long-term outlook for Asian thermal coal prices is improving, amid rising regional demand and falling mining investment, ratings agency Fitch Ratings said in its report. “Mining companies in the region are likely to face less margin pressure than under our previous price assumptions, which, along with lower capex, could support deleveraging,” it said. However, there are more constraints on their ability to generate new revenue streams, while refinancing risks might also rise for smaller miners. The current coal price of over $100 a tonne for Newcastle 6,000kcal — close to a five-year high — looks unsustainable, given the rising supply in China and Indonesia. Chinese production increased by 3 per cent to 3.4 billion tones (bt) in 2017, and the government has issued guidance to producers to increase output to 3.7 bt in 2018 to support power providers. Indonesian coal exports rose by 13 per cent on a yearon-year basis in the first quarter of 2018 and are likely to increase further as producers respond to high margins. However, falling coal mining investment suggests the long-term outlook for coal prices has turned less downbeat. The prolonged industry downturn from 2013 to 2016 has dampened mining firms’ appetite for investment, particularly in low-margin ventures, while growing environmental concerns are affecting their funding options. Fixed-asset investment in Chinese coal mining, for example, dropped by 50 per cent to 265 billion renminbi in 2017.