cme in play today massive coal potential , page-5

your 100% right there Grant, it looks like the buy side volume is starting to build again after a short period of profit taking.

below is an article from earlier in the month about coal prices and the massive prices being acheived in the spot market, in particular pay attention to the bit about the cargo from South Africa (right where CME is in discussions). It is important to remember the agreement was signed well before the surge in coal prices meaning this deal was done at bargain basement prices and will form an extremely robust and profitable operation.

CME is paying 20c per tonne of coal in this deal, quite an amazing deal.


Australian queue-cutting set to fuel the rising price of coal
Another surge in the price of coal is feared after the operator of the world’s biggest coal export terminal cut the number of ships permitted to load at the port of Newcastle in Australia.
Queues at the port, which exports coal from the Hunter Valley mines, reached a peak of 79 vessels in the summer as Asian power producers scrambled to fill up in anticipation of coal shortages this winter. To reduce congestion, last week the port operator cut export allocations for the fourth quarter of this year by two million tonnes.

The price of coal in Europe has risen by 50 per cent this year, bearing down on the profit margins of big coal users, such as cement-makers and power generators. Over the past year the share price of Drax, owner of Britain’s biggest coal-fired electricity generator, has fallen from a high of 929p in August last year to 615p. In Europe, a spot cargo of South African coal was reported to have changed hands at $115 per tonne as a European utilty sought to make good a delayed shipment.

“So many utilities and cement companies are looking,” one trader said.

“They will pay, but they are desperate that no one finds out.”

Meanwhile, Japanese and Chinese utilities are scrambling to secure supplies. Last week, several Japanese power companies agreed to pay an Australian mining unit of Peabody Energy $68 per tonne for fourth-quarter coal, a 25 per cent increase on the price in the early part of the year.

Negotiations for 2008 coal are continuing between the Japanese utilities and Australian producers, such as Xstrata and Rio Tinto, but the expectation is that prices will rise.

The surging coal price has several causes, analysts and energy traders say. Soaring energy demand is one – coal hitherto has been a cheap, albeit a dirty and carbon-rich, alternative to oil and natural gas. When oil and natural gas prices are high, power companies switch to coal to keep their electricity competitive. The high oil price has boosted global demand for coal, which rose 4.5 per cent last year.

Meanwhile, China continues to consume more. It is the world’s biggest coal producer, but the People’s Republic became for the first time this year a net coal importer and its ravenous demand for energy will continue to boost prices in Australia.

The bigger problem is infrastructure bottlenecks. According to Dresdner Kleinwort Benson, China is building 70 gigawatts of coal-fired power generation every year and the world has not enough port or shipping capacity to handle the demand.

Waratah Port Services, which operates the Newcastle port terminal, has already reduced output by four million tonnes this year.

“Port infrastructure is no longer adequate to deal with rising volumes - thus driving up freight rates,” Ajay Patel, a Dresdner Kleinwort Benson commodity analyst, said. A shortage of ships has pushed European prices to record levels.

The price of coal delivered at Rotterdam surged past $100 per tonne at the end of September, as the cost of moving cargoes of fuel escalated to levels never before seen. The Baltic Exchange’s dry freight index continues to break records almost every week, having crashed through the 9,000 level at the end of September. In the space of a month, it rose 2,000 points, reflecting surging demand from transporters of minerals – coal and iron ore – as well as grain.

The energy squeeze, which is keeping coal buoyant, has generated demand for newer products, such as biofuels, adding further pressure on the market for vessels that can move large cargoes of commodities.