This article
was first published by Seeking Alpha on April 13, 2015
By Sarfaraz
A. Khan. Research Asst. Elena Kaufmann
The price of
thermal coal, which is the single biggest source of energy for power
generation, continues to deteriorate on the back of excess supply and soft
demand. The benchmark price at Newcastle in Australia, the export hub of the
commodity, dropped to its lowest level since May 2007 to around $54 per ton on
Friday.
The weakness
has been driven in large part by the soft demand from China. The Chinese
government has been clamping down on coal use for power generation to tackle
the rising pollution levels. In addition to this, the country also introduced
quality restrictions and other protectionist measures on imports in 2014 to
defend the domestic producers. Consequently, last year, China's coal imports dropped
for the first time in more than ten years and will likely continue to head
lower. In an April report emailed to me, UBS's analysts led by Matt Murphy
predicted that China will reduce thermal coal imports "by almost 80 Mt on
an annualized basis following peak imports in 2013."
Meanwhile,
the U.S. has also been trying to reduce carbon emissions by cutting the use of
coal for power generation, which will adversely impact the commodity's demand.
The country's power sector is responsible for 38% of the energy-related carbon
emissions, more than three-quarter of which comes from coal-based power plants.
President Obama aims to slash emissions by at least 26% by 2025 as compared to
2005 levels. The change will be driven, in part, by tougher environmental regulation.
The cheap …… read full article at Seeking Alpha.
