coal priced down, coal volumes up

2005 looks likely to be the peak in the recent coal price boom. After 2005 saw hard coking coal prices set at $125 U.S/T, current negotiations for 2006/07 have seen the price settled at $115 with BHP setting the benchmark for an 8% softening in the coal price. Expectations are for the price to slip back to around $90/T over the next 3 years, still strongly up on the average price of $42 for the 10 years preceding 2005.

Conversely while the price has peaked, the volume of coal being exported from Australia is now entering it's growth phase. Infrastructure works already underway will see a further 20MT exported in 2006 over and above the 2005 level. similarly a further 20MT of capacity will be available in 2007. It is very likely this volume growth will continue right through until at least 2010, when it is anticipated Australia will be exporting up to a further 100MTpa above the current level of coal export volumes. This provides a huge growth opportunity for stocks leveraged to increasing export coal volumes.

Mining stocks which can raise production levels significantly over the next couple of years will continue to perform well even tho the coal prices are now softening off thier highs. BHP, RIO and MCC are some that will continue to enjoy growth. However the strongest growth to come will be in the mining services area, where greater volumes of coal mined means revenue and margin growth for the companies which service these mines.

CCI Holdings (CHL) is a stock which largely is paid on a per tonne basis for it's coal testing and certification services. As the tonnages they service grow, so too will their revenues and more importantly their profit margin on the incremental work. other services stocks such as UGL, TSE, WOR and CPB should contine their strong stock price performance, although not to the degree of CHL which has been restructured and is coming off an already underpriced level.