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.
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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