PRC looks to be be in a real sweet spot in terms of production start-up/market prices & demand.
Merrill Lynch sees coking coal price for 2009/10 increasing another 7% on this year's US$300/ton - see below. Looks like those analyst valuations based previously on US$200/ton for 2009/10 are going to need a significant upgrade to take these market conditions into account and the effect on the longer end of the price curve.
SYDNEY (Dow Jones)--The supply of coking coal used in steel production is so tight some steel mills might be forced to shut down, putting steel mills on the acquisition trail to secure raw material supply, Merrill Lynch said in a report Tuesday.
The bank also upped next year's coking coal price by 7% to US$320 a metric ton, following this year's record settlement at US$300/ton.
"There is market speculation that some blast furnaces are so short on coke and coking coal they might be closing. Whilst we cannot confirm this, it does appear that new blast furnaces and coke ovens, mainly in India, may see delayed commissioning," Merrill said.
Negotiations for next year's coking coal prices kick off in November, which settled at a record US$300/ton following widespread flooding in Australia's Bowen Basin.
The massive rise in prices has put steel mills on the acquisition trail to pursue strategic stakes or takeovers to secure key raw material supply, such as ArcelorMittal's (MT) investment in Macarthur Coal Ltd. (MCC.AU). , Merrill expects more M&A activity in the sector from Indian, Korean, Taiwanese and Japanese steel mills.
"The rhetoric of the steel mills on coking coal seems to have turned from relative indifference last year to a seemingly burning desire to vastly increase the vertical integration of their operations into coal," Merrill said.
The coking coal market will show a "substantial deficit" next year, the bank said, adding infrastructure bottlenecks at Queensland's ports in Australia are unlikely to ease, pushing steel mills to aggressively pursue vertical integration.
PRC Price at posting:
0.0¢ Sentiment: LT Buy Disclosure: Held
