S.Africa coal price to hit unprecedented $200/tonne FOBLONDON...

S.Africa coal price to hit unprecedented $200/tonne FOB
LONDON (Reuters) - South African coal prices are within days of reaching unprecedented levels of $200.00 a tonne free-on-board Richards Bay - against producers' cash costs of around $30.00 - producers, traders and consumers said.
"The market is extremely tight, prices are rising everywhere. Newcastle (Australian) prices have already traded above $200.00 a tonne FOB today and there can't be that much of a gap between Newcastle and Richards Bay prices," one trader said.

Traders fairly new to the coal market are taking the current upward leaps of $5.00-$10.00 with each trade in their stride, but South African producers endured many years in which they struggled to sell in an oversupplied market.

The rise of export coal prices to levels comfortably above producers' cash costs is a relatively new phenomenon. In May 2007 Richards Bay prices were hovering either side of $60.00 a tonne FOB and most producers sold at least some of their output forward fixed at those prices.

"Looking back, nobody was predicting, nobody could have predicted, that prices would rise this much," one producer source said.

Coal exports are a vital source of revenue for mineral-rich South Africa. Exports have been around 63 million tonnes a year of 6,000kc/kg standard coal for the past few years out of a capacity of 73 million tonnes at Richards Bay Coal Terminal.

The Phase V expansion is intended to enable exports to rise by a further 20 million tonnes.

PRICES BULLISH DESPITE SCANT INDIA BUYING

The Indian sub-continent has become a key consumer of South African standard export grade coal but, as international prices have soared, Indian buyers are increasingly looking to cheaper, lower quality coal from South Africa and elsewhere.

India is expected to import around 9 million tonnes of South African coal in 2008, much of it bought earlier in the year at lower prices.

India has taken as much 5,400-5,500 kc/kg South African coal as possible. It is the ideal grade for India, Indian traders said.

"South African prices are now far too high for the Indian market. End-users are not going to pay $220.00 or more a tonne CIF. They will cut their demand or buy elsewhere," one major Indian trader said.

Prices are near $200.00 a tonne FOB already despite very scant Indian spot buying in the past few months, traders and utilities said. A continued lack of Indian buying will probably do little to slow the current bull run, they said.

"There must be a correction but we don't think prices will fall by much, or for long," a second major Indian trader said.

During the past year, Indian buyers have widened their search to include coal with a still lower calorific value, higher ash and even coal discard dumps at the mines.

"Indians are used to handling and processing high ash coal. Indian coal is itself extremely high ash. We see opportunities to buy and wash South African discard and ship the result to India," one Indian coal importer said recently.

Source Reuters

Yep - $30 to produce something that sells for $200 - good call today to those people that sold CDS - lol!!!!

Remember - Big Picture