Coal price to come down, freight rates to harden

Chinese coal prices, which have fluctuated between CNY550-750/t (US$83.60-114/t) in the past two years, are set to ease going forward, as it is anticipated that the country's policy makers will allow Chinese miners to increase production again in response to prices reaching the upper range of US$100/t in Newcastle.

Coal producers outside China are also ramping up production, tempted by the higher prices realised in 2017. US exports have been reported to expand at the highest pace in the last five years, while in Colombia and Australia coal supply is improving.

Meanwhile, seaborne demand from key importers such as China and India is anticipated to contract as domestic output expands.

The resulting oversupply is expected to lower prices for seaborne coal with Newcastle prices falling from an average US$80/t in 2018 to US$70/t one year later, according to research by Bank of America Merrill Lynch.

In terms of freight rates, a light order book for dry bulk vessels is expected to support rising vessel utilisation and as a result, dry bulk freight rates are expected to gradually recover.