Goldman cuts coal forecast as Indian demand seen following China

[NEW DELHI] The shrinking need for imports by two of the world's largest coal consumers is undermining the fuel's outlook, according to Goldman Sachs Group Inc, which cut price forecasts through 2018.

Imports by India, which overtook China as the main driver of seaborne thermal coal demand, may slow as the country increases domestic production, analysts including New York-based Christian Lelong wrote in a Sept 22 report. Prices will also be pressured by a 30 per cent drop in marginal production costs over two years through 2016, according to the note. The bank cut its price forecast for Newcastle coal, a benchmark in Asia, by 17 per cent to $54 a metric ton for next year.

"Countries with large coal reserves can eventually reduce their dependency on imports," the bank said in the report. "The ongoing reforms of the Indian mining sector should lead to stronger domestic production that may rob the seaborne market of its last source of growth." Prices at Australia's Newcastle port have declined 14 per cent to about $57 a ton over the past year, according to data from Globalcoal. Goldman cut its long-term price forecast to $50 a ton from $65.

China has "overinvested" in coal mining which has damped its need for imports. Its transition to a services and consumption economy will result in "muted" demand for the fuel as its electricity use is heavily skewed toward the industrial sector, the analysts wrote in the report.

While India continues to suffer from wide-scale energy deficits, the nation is making progress securing fuel from domestic sources. State monopoly Coal India Ltd., the world's largest producer and responsible for more than 80 per cent of the nation's output, has reported record mining growth and aims to double output in five years.

"Current trends in China and India - accounting in aggregate for 66 per cent of global consumption and 31 per cent of seaborne imports - have emerged as the main downside risks to the thermal coal outlook," the analysts wrote.

BLOOMBERG