CRU: Anti-coal Mining Cycle - High Prices Mean High Margins for the Majors, but the Lack of Investment Creates Opportunities for Juniors

LONDON, December 14, 2017 /PRNewswire/ --

The last time that profitability in the metallurgical coal industry was this high, the industry's majors were racing one another to spend billions of dollars to increase production capacity.

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Exporting companies have earned average margins of 42% in the last twelve months, according to CRU's Metallurgical Coal Cost Model. Today, however, they are largely reluctant to develop new projects. While this approach may be wise, high prices will create opportunities for junior project developers to increase the value of their portfolios and, potentially, bring new supply to the market.

Higher 'hurdle' rates for coal projects
An important consideration for those involved in the market is the extent to which supply will increase in response to higher price levels. The chart below shows our estimate that seaborne supply will increase by 15 Mt in 2017, therefore, we can say that the industry has responded thus far. However, in the six years following the previous spell of >40% margins, a cumulative 110 Mt of seaborne supply was added to the market and this contributed heavily to the sharp downturn in the market during the years 2012-2015.

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About CRU 

CRU offers unrivalled business intelligence on the global metals, mining and fertilizer industries through market analysis, price assessments, consultancy and events.

Since our foundation by Robert Perlman in 1969, we have consistently invested in primary research and robust methodologies, and developed expert teams in key locations worldwide, including in hard-to-reach markets such as China.

CRU employs over 260 experts and has more than 10 offices around the world, in Europe, the Americas, China, Asia and Australia - our office in Beijing opened in 2004.

When facing critical business decisions, you can rely on our first-hand knowledge to give you a complete view of a commodity market. And you can engage with our experts directly, for the full picture and a personalised response.

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