Crushed coal takes gloss off iron ore boom

See the latest Australian dollar analysis here:

Macro Afternoon

Not that this matters much for the deficit, which is now irrelevant, but it will matter to the Australian dollar. Via the AFR:

Glencore is working on plans to slash output from Australian coal mines in response to weak prices, in a move that will reinforce the Swiss miner’s reputation as the most active manager of supply and demand in global commodity markets.

…The move comes after prices for top-quality thermal coal from NSW have slumped from more than $US120 a tonne to just $US51 a tonne over the past two years, leaving an estimated 30 per cent of local mines in the red.

Glencore also has a small presence in Queensland coking coal, where prices have slumped from $US210 a tonne in May 2019 to $US111 a tonne on July 22.

Thermal coal is now cents away from it 2015 lows:

Coal has to compete with LNG in Asia, which is equally cratered amid a structural glut that will last for the entire 2020s. It does not impact the terms of trade much owing to oil imports.

Coking coal may be able to hold given Chinese steel output but its glory days are over as well.

These two have taken the gloss off the new iron ore boom, though it has delivered a quarterly lift:

We still see the ToT falling away structurally as the virus passes and China slumps into the middle-income trap debt bog.

David Llewellyn-Smith
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