According to analysts at BofA Securities, the global metallurgical coal market is expected to shift into a surplus by 2025, marking a significant transition from the persistent supply deficit experienced since 2021. This shift is being driven by increased output from key suppliers such as the United States and Mongolia, coupled with a slowdown in demand, particularly from China.
As the market dynamics evolve, BofA forecasts that by 2025, the market will be in surplus territory, leading to downward pressure on prices. Currently, Australian hard-coking coal prices have already dropped to around $180 per tonne Free on Board due to sluggish steel production and rising coal supply.
Despite the decline in prices, suppliers are reluctant to sell below $200 per tonne, factoring in freight costs between China and Australia at $13.5 per tonne. This resistance to lower pricing is acting as a support level for met coal prices. However, further price drops, particularly in North America, could result in supply cuts as some producers may find it unprofitable to continue operations.
A key driver of this anticipated surplus is the diminishing demand from China, the largest consumer of coking coal globally. The country’s steel industry is facing challenges, including a downturn in the real estate sector, leading to reduced steel prices and output, consequently lowering the demand for met coal.
While India is emerging as a significant player in coking coal demand due to infrastructure and housing projects, BofA believes that this growth will not be sufficient to prevent the market from entering a surplus in 2025. Indian steel production is expected to increase by 12% year-over-year, but the overall global dynamics are pushing the market towards oversupply.
Looking ahead to 2025, while the surplus may limit price increases, there are factors that could drive prices upward in the short term. Strong demand from India and potential supply disruptions from Australia, caused by weather events like La Niña, could temporarily support prices despite the overall market trend towards oversupply.