Coal Markets Hit Hard as Emerging Economies Begin to Wobble

This article was written by Oilprice.com -- the leading provider of energy news in the world. Also check out these recent articles:

Slowing growth in developing countries has started to affect the commodities market, especially for coal, as orders are slashed and prices have fallen as much as 10 percent in a month. Commodities are often closely linked to the success of developing economies, whose demand for energy increases as wealth increases and infrastructure is improved.

Charlie Morris, the head of absolute return at HSBC Global Asset Management, explained to Reuters that"commodity demand is more concentrated in fast-growing countries ... The marginal buyer of commodities is very much the emerging world and it's going through a bear market right now. Commodities will probably have a bad time for much of this year."

Thermal coal, as the cheapest fuel for electricity generation, is vital for the industrialization of emerging economies, and has therefore been the hardest hit by the recent slowdown in growth. Currencies, such as the Indian rupee and the Turkish lira, have also fallen, making coal imports much more expensive.

South African coal producers have been badly affected by the weakening of demand from India, forcing coal prices in the region down 8% in the last 10 days. George Cheveley, a portfolio manager at Investec Asset Management, warned that "people might see India cutting back on coal purchases and thermal coal prices might come down further."

Reuters adds that European coal markets have also suffered, with prices falling more than 6% over the past two weeks thanks to a reduction in demand from Turkey, and Australian coal prices are down 10% since the start of the year, currently at $78.75 per tonne.

Other commodities, such as iron ore, have also been hit by the fall in demand from struggling developing economies, however Reuters notes that this is more closely linked to the situation in China than other developing countries.

Colin Hamilton, the head of commodities research at Australian bank Macquarie, stated that "iron ore is purely a China story whereas coal is more leveraged on emerging markets, particularly India."

Last year Chinese coal consumption rose just 2.6%, one of the lowest rates of growth for years. This was fueled by a slowdown in the country's economic growth, along with new environmental policies that promote the use of natural gas in favor of coal.

The Top Stock for 2014
There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

 


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

DocumentId: 2818902, ~/Articles/ArticleHandler.aspx, 7/30/2014 8:25:32 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement