Culprit behind coal rout

Coal price drop to below six year level has started claiming its victim in US. US coal producer Xinergy filed for bankruptcy earlier this week.

So who to blame this price rout?

Be it supply side or demand, the answer is China.

• Glencore announced three week shut down to balance the market in last December. South Africa announced 5 million metric ton cut this year followed by Australia with 15 million metric ton cut. However all failed to boost prices that is now hovering close to $50. Metric ton.

Reason is simple -

Excess capacity in China.

Local producers in China remains at large producing 4 metric ton for each ton imported by China from foreign suppliers. Chinese import market has shrunk dramatically since 2009 to 17% last year. According to Industry experts, share of seaborne supply to China will reduce further around 12% in 2015 and to single digit beyond.However some experts feel, domestic producers to lose out in long term due to their cost disadvantage to foreign large suppliers.

From demand perspective, China is still slowing down and might continue to do so. Some experts are going even further to say that there would be a big miss in GDP figure this year.

Until commodity producers can find new demand sources across Europe and North America, doom gloom in commodity prices are here to stay longer.