Metallurgical Coal Expected to Shift to Surplus by 2025: BofA

Metallurgical coal is set to experience a shift towards a market surplus by 2025, according to analysts from BofA Securities.

The global met coal market has been contending with a supply deficit since 2021; however, increasing production from major suppliers such as the United States and Mongolia, coupled with declining demand—particularly from China—is altering the landscape.

BofA projects that by 2025, the market will transition into surplus, likely leading to downward pressure on prices. Currently, prices for Australian hard-coking coal are approximately $180 per tonne, influenced by sluggish steel production and an increase in coal supply.

Despite the price drop, suppliers are hesitant to sell for under $200 per tonne, taking into account transportation costs between China and Australia, which are about $13.5 per tonne. This reluctance to accept lower prices is helping to establish a price floor for metallurgical coal.

However, further price declines, especially in North America, could result in supply cuts as some producers may find it unprofitable to continue operations.

A significant factor contributing to the expected surplus is the dwindling demand from China, the world’s leading consumer of coking coal. The Chinese steel industry is grappling with substantial challenges due to ongoing struggles in the real estate sector, which have led to falling steel prices and decreased production, thus lowering demand for met coal.

Although the People’s Bank of China is attempting to stimulate the economy, credit demand remains weak, restricting the prospects for a sustained recovery in steel demand.

On the other hand, India is emerging as a vital player in coking coal demand due to its focus on infrastructure development and housing initiatives. Steel production in India is projected to increase by 12% year-over-year, making the country an expanding consumer of met coal.

Despite this surge in Indian demand, BofA contends that it will not be sufficient to prevent the market from shifting to surplus in 2025. Indian steelmakers continue to depend on blast furnaces, ensuring consistent demand for coking coal; however, this demand faces broader global pressures that favor an oversupply situation.

Looking toward 2025, although the anticipated surplus may limit price hikes, various factors could drive prices upwards in the short term. Demand from India remains strong, and potential supply disruptions in Australia, resulting from weather events like La Niña, could restrict production, offering temporary support to prices.