Feb 20, 2012 (Bloomberg) -- Thermal coal at Qinhuangdao, China's biggest delivery port for the fuel, will extend declines in the next two years as production outpaces demand and transport constraints ease, Sanford C. Bernstein & Co. said.
Prices may fall 5 percent this year and another 10 percent in 2013, Michael Parker, an analyst based in Hong Kong said in a report today. The decline will also occur as China's 2012 coal production growth of 6.6 percent outpaces demand increases of 5 percent, the note shows. This continues in 2013 as consumption changes slow to a gain of 4.2 percent amid an output expansion of 6.1 percent.
China is expected to add about 11,000 kilometers (6,800 miles) of coal-dedicated railroads between 2011 and 2014, raising transport capacity by 1.3 billion metric tons by 2015, according to the report. Trains will be able to carry 334 million tons more this year than in 2011, an increase of 15 percent, the analyst wrote.
"Transport costs will decline as transport by truck is reduced," said Parker. "This level of growth will exceed domestic coal production growth and will result in a continuing truck-to-rail transition, creating further downward pressure on coal prices."
The spread between coal prices at Qinhuangdao and mine- mouth rates in the northern Shanxi province has fallen 41 percent over the past two years, and 25 percent for Inner Mongolia, according to the report.
"This drop in the price spread is indicative of declining transportation costs," wrote Parker.