I noted yesterday that Goldies have shattered their long term iron ore outlook but they’ve also beared-up on the wider bulks. On coking coal:
Production costs are falling as mining productivity starts to improve. Meanwhile, the gradual displacement of marginal capacity (mine closures since 2013 are equivalent to 10% of current seaborne supply) is gradually flattening the industry cost curve; extending these trends into the future, we estimate that marginal production costs for premium hard coking coal could drop to US$130/t by the end of our forecast period. At the moment, coal prices have undershot relative to marginal cost. The persistent oversupply in the Chinese domestic market is likely to continue during 2015-16 and many producers in China and other supply regions are operating at a loss; the decline in prices has run ahead of cost deflation. However, prices should revert towards marginal cost even as costs are dropping.
On that basis we downgrade our premium hard coking coal forecasts for 2015/16/17 to US$116/125/130/t FOB Australia. We also downgrade our long term forecast to US$130/t (down 18%) to reflect the combined impact of sustained deflation and a delayed return to inducement pricing.