thermal coal prices to remain at high levels

Keeping an eye on the LT picture - still looks good for thermal coalers :)

Thermal coal prices to remain at high levels in long term: analyst

Manila (Platts)--14Mar2012/619 am EDT/1019 GMT

Thermal coal prices will remain at relatively high levels over the long term despite aggressive mine expansions to meet the growth in Asian demand, particularly from China and India, Wood Mackenzie coal analyst Prakash Sharma said Thursday.

Sharma told the Coaltrans India conference that seaborne thermal coal demand will "grow exponentially" from now until 2030 mainly because of the increase in demand from China and India.

He said that although there will be "aggressive" thermal coal supply expansions, steam coal prices in the long term will defy expectations of a drop and will instead remain at high levels.

Sharma said there may be short-term seasonal fluctuations such as the drop in prices in the current quarter, but the Newcastle reference coal price for Australian coal will increase progressively.

He said cost pressures, infrastructure bottlenecks and a decrease in export coal quality will combine to hold prices at traditionally high levels.

China and India will be the top two demand drivers, Sharma said.

By 2030, China's seaborne thermal coal demand will be 1 billion mt/year from 175 million mt in 2011, Prakash said.

India's seaborne steam coal demand by 2030 will be 400 million mt/year from 80 million mt in 2011, overtaking Japan.

Prakash said India's thermal coal demand may be even higher if domestic coal supply is constrained by delays in associated rail and port infrastructure projects.

The supply of thermal coal will be tight in the "near term," although a "significant growth of thermal seaborne supply" is expected to come from existing and emerging basins.

Sharma said the "emerging" coal basins to keep an eye on are Australia's Surat and Galilee basins, Indonesia's Kalimantan and Sumatra basins as well as basins in Mozambique, Mongolia, Russia and the west coast of the United States.

He said South African coal will continue its migration from Europe to Asian markets, and other Atlantic Basin suppliers such as Colombia and the eastern US will also participate, although marginally.

"Despite aggressive expansions in thermal coal supply, long-term prices will defy expectations of a drop in prices, instead remaining high in the seaborne market," Prakash said.

He said cost pressures from changing fiscal regimes such as the carbon tax in Australia and the minimum export price regulations in Indonesia will also support high thermal coal prices.

Wood Mackenzie also expects a decline in export thermal coal quality as large volumes of low rank coals from Indonesia enter the seaborne market, Sharma said.

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