Best guess on the upside is where - certainly above 20c by the end of May. This little puppy is like a coiled spring. ResSA give approval and then it is followed up with a resource upgrade all in a red hot sector as per below (stolen from another thread)
Coal miners smile as steelmakers, power utilities see red
Coal miners are set for a windfall this year, as initial benchmark negotiation results indicate that coal prices are likely to double or triple in some instances. Author: Rodrick Mukumbira Posted: Tuesday , 08 Apr 2008
WINDHOEK -
The writing had been on the wall as early as January this year when coal, long considered an inexhaustible, cheap and dependable source of energy, suddenly found itself in a vicious circle of tight supply and high demand that sent its prices to new highs.
As results from the annual process to set benchmark coal prices began trickling in this week, a dark cloud hung over steelmakers and electricity generators with indications pointing to the fact that they would be forced to pay far more for the commodity.
Nevertheless for the coal miners, the 2008 financial year looked promising and bountiful, amid expectations that they would rake in more returns from mining the dirty commodity. Most coal is traded under annual contracts and the currently round of negotiations have been ongoing for several months.
First to send shock waves through the coal market was an agreement reached between the South Korean steelmaker POSCO and Australian miners BHP Billiton and Rio Tinto Monday that hiked the prices of coking coal by 205 to 210%, thereby pushing them from US$98 (last year's price) to over US$308 a ton this year.
The Times reported the price hike was part of a wider trend that has seen commodities skyrocket as miners struggle to meet overwhelming demand from the industrialising East.
POSCO's coal and iron ore costs will rise 81% to US$8.7 billion this year, assuming a 65% rise in iron ore prices and a 200% increase in coking coal, according to a Bloomberg report, but may boost its cost of making steel by US$190 a ton.
"The coal price increases are actually higher than we expected," Bloomberg quoted Kim Gyung Jung, an analyst with Samsung Securities Co., as saying.
BHP Billiton, which has yet to confirm the price increases, is also rumoured to have agreed to another contract with European steel giant Arcelor Mittal that will see its coking coal trading at US$305 a ton.
"The steel mills are going to have to bite the bullet,'' Mark Pervan, a commodity strategist at Australia & New Zealand Banking Group Ltd., also told Bloomberg, adding, "The coking coal market has been heavily impacted by supply issues."
Responding to the new contract prices, ABN Amro reportedly upped its profit forecasts for BHP Billiton and Rio Tinto, saying the two majors had solid coal upside exposure. It estimated the earnings impact for BHP for the 2008 financial year to register a 2.8% positive growth, with Rio seeing a 4.9% positive impact from the increased coal prices.
The bank agreed that the price rises seen in the past few days especially in coking coal were unprecedented, and estimated that semi-soft prices could settle in the region of US$175 per ton (previously US$145 per ton) and low volatile pulverised coal at around US$190 per ton (previously US$169 per ton), according to a MiningNews.net report Tuesday.
While prices for all steel products have been driven up by a combination of rising iron ore, scrap metal and energy prices and lower exports from China, coal supplies are extremely tight on international markets and stocks at many steelmakers are being depleted to dangerously low levels.
Meanwhile China, the world's largest consumer of coal, is burning through more than the United States, European Union and Japan combined due to the worst blizzard of the past half-century this year. And its consumption is set to increase by about 10% a year.
Last month, it was forced to shut 7% of its thermal power capacity because of supply disruptions caused by the snowstorms.
Vietnam, China's largest coal supplier, has reduced exports by 32% this year and is in the process of gradually eliminating sales to meet rising domestic demand, with exports likely to drop to a forecast 22-million tons this year from 32.2-million in 2007.
Severe floods in Australia's Queensland in January and February also contributed, reducing production by as much as 15 million tons and pushing spot prices for coking coal up to US$400 a ton as desperate steel mills tried to secure supplies.
The floods caused six big coal producers, including Rio Tinto, BHP Billiton and Xstrata PLC to declare ''force majeure,'' a contractual option that allows them to miss coal deliveries because of events outside their control.
Another important coal producer, South Africa - a net exporter of coal - will score its first this year by importing coal. Its power utility, Eskom is planning to buy an additional 45-million tons of coal to replenish depleted stockpiles, 45% of which will be imported.
Thermal coal, which is used for power stations rather than steel-making, looked set also to more than double from its existing level of US$56 a ton. Top thermal coal exporter Xstrata PLC reportedly having won a deal with Japan's Chubu Electric, the country's number three utility, setting a US$125 a ton benchmark that was likely to be followed across Asia.
"What appears to be coming to fruition in coal contracts are numbers that we've never seen. These are astronomical numbers in [metallurgical] coal," John Hughes, an analyst at Desjardins Securities, was quoted as saying by Canada's Globe and Mail newspaper.
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