CHICAGO: Coal prices, already down 52 per cent since 2011, are forecast to keep falling. The rout shows that exporters’ Opec-like tactics of trying to squeeze out high-cost producers have been frustrated by the rising dollar.

Miners from Colombia to Australia maintained output as prices fell for a fourth year in 2014 amid a global glut of seaborne coal that Deutsche Bank says is poised to triple this year. A 19pc jump since July in the Intercontinental Exchange’s dollar index, which tracks the greenback against 10 major peers, has helped companies that extract the power-plant fuel whose costs are measured in local currencies.

The approach is comparable to that of the Organisation of Petroleum Exporting Countries (Opec), the 12-member group that agreed in November to keep output unchanged even as a 49pc slump in crude in the second half tested the ability of US drillers to keep pumping. US coal producers, who are exposed rather than protected by the rising dollar, are cutting output, while the Russians have been the biggest beneficiaries as the rouble’s decline has made them among the lowest-cost producers.

“It’s the same strategy in coal as in oil,” Guillaume Perret, a director in London at Perret Associates who’s tracked and traded energy for 16 years, said by phone. “There has been a strategy for the main miners, especially those with lower costs of production, to keep producing and push more expensive producers out of the market.”

Thermal coal at the port of Newcastle in Australia, the fuel’s biggest export harbour, averaged $70.97 a metric tonne in 2014, according to prices from Globalcoal. This year it will drop 8.9pc to $64, the lowest since 2006, based on the median of five analyst estimates compiled by Bloomberg from UBS Group to JPMorgan Chase.

Northwest Europe coal will average $62.50 a tonne this year, the lowest in records going back to 2007, according to the median of six analyst estimates compiled by Bloomberg. Average prices tumbled 12pc in 2014 to $78.36.

The dollar rose last year as signs of stronger US growth encouraged the Federal Reserve to end asset purchases and move toward raising interest rates. The Russian rouble declined 49pc against the greenback over the last 12 months, an extreme case of the dollar’s appreciation because of sanctions against Russia after its takeover of Crimea.

Russian thermal coal cost $50 a tonne to deliver to Europe on Jan 7, compared with $83 in June, Citigroup said Jan 14 in a note. The Russians have gone from the highest-cost suppliers in the Atlantic and Pacific Basins to the second cheapest in both, according to the bank.

The Australian dollar fell 8.3pc last year against the greenback, positioning Australian producers to regain market share, Jim Thompson, a director of coal at IHS Inc in Knoxville, Tennessee, said Jan 27. They lost customers earlier this decade amid flooding, labour unrest and a move to shorter-term contracts.

“The lower prices aren’t as painful for them to accept,” Thompson said by phone. “It’s much like Saudi Arabia and Opec with oil right now. This move by the Australians is a move to win back and also maintain market share.”

By arrangement with Washington Post-Bloomberg News Service

Published in Dawn, February 1st, 2015

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