Metallurgical coal outlook for 2009

Demand for metallurgical coal next year will be 7% lower than in 2008, as global steel production continues to drop, a new report from Credit Suisse says.

World steel production contracted a year-on-year 12% in October and the investment bank says the markets are concerned steel production could go down by as much as 20% next year.

But that forecast seems “overly pessimistic” the investment research arm of Citigroup Global Markets notes in its Dec. 17 note to clients, especially when one compares it with the biggest downturns in steel production since 1900 (apart from the Great Depression and War years). World steel production fell 7.5% in 1958; 9% in 1975; 8.9% in 1982 and 4.4% in 1991.

Major steel production cuts will persist in the first quarter of 2009, however, and Credit Suisse warns that “there needs to be a swift response from the met coal producers.” (Hard coking coal is a basic ingredient of blast furnace based steel production.)

Credit Suisse forecasts that coking coal prices in 2009 will bottom at US$135 per tonne, US$113 per tonne and US$108 per tonne for hard coking, PCI and semi-soft coals.

In terms of thermal coal, Credit Suisse predicts a 2% supply surplus in 2009. As for demand, “2009 is likely to see the lowest growth in thermal coal imports on the internationally traded market for nearly two decades at 0.5%.