The price of Newcastle 6,000 kcal/kg NAR coal is expected to fall below the $60/mt FOB mark in the next three to six months, amid weak demand and the upcoming import tax in China, Deutsche Bank analysts said in a note.
China has announced a slew of measures this year to shore up its battered domestic coal producers and battle pollution.
It has asked utilities to cut down on imports significantly in the fourth quarter and has also imposed a coal import tax of 3-6% from October 15.
"The Chinese domestic price now strongly influences the seaborne price. Hence the imposition of a Chinese import tariff is likely to add further downside pressure to prices," the analysts said in the October 10 note.
The price of Newcastle 6,300 kcal/kg GAR coal has shed more than a quarter of its value since the start of this year, Platts data showed.
"We think there is a further $5/mt downside risk in thermal coal pricing due to the combined impact of the Chinese import tariff on coal, and the Deutsche Bank view that many producer currencies will weaken versus the US dollar," the analysts said.
The impact from the Chinese import tariff is likely to be $2/mt and that from the currencies is likely to be $3/mt, they noted.
"Although $5/mt is less than 10% of the current spot price, margins in the thermal coal market are slim, which means that a further 100 million mt of production will be at risk," the analysts said.
"We think this move will be enough to trigger a supplier discipline and stabilize pricing at these levels," they added.
Consumption at China's six major coastal electric utilities declined 23% year on year during August-September and the seasonal uptick in price owing to winter restocking may be less likely to materialize this year, they said.
China accounts for nearly a quarter of Australia's total thermal coal exports.
However, Indonesia and Vietnam stand to benefit as both countries are excluded from the Chinese import tax under the ASEAN free-trade agreement, they noted.
China accounts for 100% of Vietnamese exports and about 30% of Indonesian exports, the analysts said.
