Most assessments of the steam coal cost curve would have suggested some kind of supply response in the seaborne market to weak prices. But looking at major exporters, supply is currently growing unabated, rising ~14%YoY in Q4.
There doesn't seem to be much sign of weakness in supply anywhere. US steam coal shipments have slowed from their mid year, levels although are still well above where we were this time last year. Most surprising is the incredible surge in Indonesian exports. Anecdotal evidence that producers of low rank coal are under a pressure certainly isn't reflected in the numbers, with exports averaging over 400mt annualised in Q4. Australia has also been performing very stronger, with record shipments in the month of December.
It may be the case that the first response to price weakness is to boost productivity. So rather than cut back production, which can be costly in the long run, miners are trying to produce as much as they can with the same inputs to lower costs per tonne.
This gambit may work if demand was to improve in the near future. But for that to work, producers really need strong bullish signs from the biggest swing factor in the market in China. The latest data point suggests that Chinese IPPs are comfortably supplied heading into Chinese New Year, with stocks stable at 18 days as of 20 Jan, with consumption also fairly stable.
So perhaps more difficult decisions to come for thermal coal producers who are at the upper end of the cost curve.
