I HAD BEEN ASSURED COAL WAS DEAD: Coal market threatened by glut from over production.
Australian coal prices serve as a benchmark for Asia and soared over 130% to nearly $110 a tonne last year creating huge profits for producers. These high prices caused suppliers to ramp up production flooding the market and causing prices to plummet. Despite this, the Indonesian coal industry has several major producers which are still planning major production increases for the latter half of this year.
The main question is whether producers will continue to reinvest profits creating additional production capacity. It is a simple matter to put idle equipment to work or increasing the hours for a workforce. However, if major investments are made in new heavy equipment which is put into service there will have to be a major increase in output to offset the cost. This type of increase is what could drive an already over saturated market into a glut.
Some people think the threat of the market being over saturated is being blown out of proportion. Australian coal prices have fallen but that fall came from record highs where a correction was needed and demand in the area is increasing dramatically as well.
The War on Coal is over — and coal won.