Moody's 2015 outlook for Asian coal industry negative

(November 26, 2014) -- Moody's Investors Service says that its negative outlook for the Asian coal industry in 2015 reflects the producers' struggle to generate positive cash flows, against the backdrop of weak coal prices.

"The negative outlook for the Asian coal industry reflects our expectation that excess supply will keep coal prices low throughout 2015, which in turn will make it difficult for companies to generate operating cash flows," says Brian Grieser, a Moody's Vice President and Senior Analyst.

Grieser was speaking on the release of Moody's 2015 outlook for the Asian coal industry.

Moody's expects the industry's average EBITDA per tonne will remain below $10-$15 in 2015.

Moody's also says that continued industry-wide cost-cutting initiatives will help soften further earnings declines, but will not offset the impact of falling prices.

Newcastle thermal coal will remain weak at $65-$75 per tonne, and coking coal will stay around $120-$130 per tonne.

Moody's points out that while downside pricing pressure will likely ease after recent regulatory controls implemented in China (Aa3 stable) and Indonesia (Baa3 stable), the measures are insufficient to support a material recovery in prices. China has implemented tariffs on imports and guided miners to cut production levels, while Indonesia has implemented an export licensing regime and has committed to keeping production levels flat.

On seaborne coal, Moody's says the supply of the commodity should be stable in 2015, owing to slower production growth and these regulatory controls implemented in China and Indonesia.

Moody's says that while China's falling import volumes in 2014-15 ? resulting from the country's new import restrictions ? will be negative for seaborne prices, the lower import volumes will support domestic coal prices. Moreover, increased consumption levels in Asia (excluding China) will partially offset the falling import levels in China.

Moody's would consider changing the industry outlook to stable if Moody's expects that average EBITDA per tonne will exceed $10-$15 over a 12 month period, and the price of Newcastle thermal coal will rise to $75 -$80 per tonne, and coking coal to $135-$145 per tonne over the same period. (ends)