But despite the lower production levels, metallurgical coal prices will take at least two years to stabilise and start creeping up again, WoodMac said. It is forecasting Q1 2016 contract prices to be lower than those for Q4 2015.
“Buyers and sellers have started the talks at odds over the current level of hard coking coal spot prices, unsurprisingly, given the considerable variation between major price indices,” it said.
“With the marginal cost of Australian supply sitting close to $US78 per tonne at current exchange rates, we expect a reasonable price for LV HCC to be in the low to mid-US$80s/t range.
“But the ultimate outcome will be determined by the Japanese mills' willingness to continue to pay a premium to spot prices. We expect prices to increase in 2016 as supply exits the market and HCC demand grows in a number of countries, but the increases will be modest.
“It will be late 2017 before a modicum of balance returns to the HCC trade.”
The result today of the climate change conference in Paris could have a significant impact on the global energy market, as greenhouse gas emissions limitations slow global energy demand growth and drive the market to favour gas and non-fossil-fuels over coal, according to WoodMac.
Over the next last weeks, nearly 200 countries and 140 global leaders will be gathered in Paris for the United Nations Framework Convention on Climate Change, or 'Conference of Parties' (COP21).
The conference's goal is for these countries to come to agreement on how to reduce global CO2 emissions beyond 2020, capping the global temperature rise at 2 degrees Celsius.
But Wood Mackenzie Research Director—Global Trends Paul McConnell questions whether the conference will turn the tide on climate change.
“The UN can't solve climate change, but CO2 controls are coming anyway,” he said.
Outlining the major players' emissions profiles as a result of previous climate conference negotiations and applying Wood Mackenzie's base case forecasts for long-term energy demand, McConnell considers market forces more likely than international law to lower greenhouse gas emissions.
