This will be a massively profitable project. High grade coking coal is booming and expected to continue. Patience will prevail on this one. Hold NZO ( 40% of PIKE)
Booming coal markets in 2007
Data is gradually coming in regarding trade in coking and thermal coal for the fist half of 2007. This enables us to start to analyse why prices have taken off as strongly as they have. We have collected the export data form the major coal exporting countries (adding some estimates where data is not yet available). The interpretation of this data is difficult in the sense that higher exports could indicate over-supply or strong demand, while lower exports could reflect lower demand or supply problems. The fact that spot prices for coking coal have soared to roughly $135–140/t fob in Australia in recent months (compared with the annual contract settlement of $98/t) and that spot thermal coal prices out of Australia (Newcastle) are currently $72/t fob compared with annual contract prices of $55.50/t suggests the following: ⇒ Coking coal – 10.4% YoY growth in exports = booming demand but a relative supply shortage ⇒ Thermal coal – 2% YoY growth in supply = supply growth lagging demand Summary of 1H07 thermal and coking seaborne coal exports (mt) Steam Coal Exports (mt) Jan-Jun Jan-Jun % Change Change mt 2007 2006 Y-o-Y Y-o-Y Australia 56.1 56.1 0.0% 0.0 South Africa 31.7 30.9 2.6% 0.8 Indonesia 91.7 81.6 12.4% 10.1 China 17.9 25.7 -30.3% -7.8 Colombia 31.1 27.0 15.2% 4.1 USA 3.5 2.1 65.9% 1.4 Venezuela 3.9 3.9 1.5% 0.1 Russia 29.2 29.1 0.4% 0.1 Poland 3.9 7.4 -47.4% -3.5 Total Above 269.0 263.8 2.0% 5.2 Jan-Jun Jan-Jun % Change Change mt Met Coal Exports (mt) 2007 2006 Y-o-Y Y-o-Y Australia - hard 41.5 38.2 8.8% 3.4 Australia - semi-soft/PCI 26.2 21.9 19.8% 4.3 Canada 12.4 11.8 5.4% 0.6 USA 11.7 10.7 9.6% 1.0 China 3.1 3.8 -19.3% -0.7 Russia 2.5 2.4 5.6% 0.1 Poland 1.1 1.5 -27.0% -0.4 Total Above 98.6 90.2 9.2% 8.3 Chinese coke - coal eqv. 10.5 8.5 22.4% 1.9 Grand total - coal eqv. 109.0 98.8 10.4% 10.3 Source: Customs’ statistics, Barlow Jonker, McCloskey Coal, Macquarie Research, August 2007 The highlights of the thermal coal data include: ⇒ No growth in Australian or South African exports (despite expectations to the contrary at the start of the year). ⇒ A collapse in Chinese exports (down 30.3% YoY in the first half – accompanied by a strong rise in imports (see next table). ⇒ A collapse in Polish exports (these are total not seaborne export numbers). ⇒ Strong growth from Indonesia, Colombia and US (from a low base). However, Indonesian exports were weaker than expected and an increasing portion are sub-bituminous (lower energy content) coals. ⇒ European coal demand has been weak this year (down 10mt+ YoY) due to plentiful gas and excess power station coal stocks. However, Indian, Japanese (nuclear power problems) and Chinese demand has been booming and buyers have been looking to South Africa for extra coal units following recent Australian port and Indonesian weatherrelated problems. The highlights of the coking coal data are: ⇒ Surprisingly strong growth in Australian exports (especially of-lower quality semi-soft coal) – however, exports are expected to slow in 2H07 due to lack of port capacity at DBCT. ⇒ No or low growth everywhere else (US the exception). ⇒ We understand that the booming exports reflect a strong rebound in buying following heavy destocking in 2007 plus a switch by steelmakers back to coking coal from coke following a doubling in Chinese export coke prices from $120/t fob to $250/t over the past year (given you need one 1.3t of coking coal to make a tonne of coke, it was much cheaper to buy coke last year – this year it is much cheaper to buy coking coal and make coke, if you can get the coal).
PRC Price at posting:
0.0¢ Sentiment: Buy Disclosure: Not Held