Thought i would post up an article dated yesterday about Coking coal from macquarie bank. Looks like they are still having supply issues and will continue too into the future.
Commodities Comment - Coking coal 09 March 2011 | In confusion: Friday's reported coking coal contract settlements for 2Q were a surprise out to many (in timing and amplitude) given the assumed lack of progress in negotiations to date. We assess the market fundamentals in coking coal and confusion over contract settlements. With no official confirmation yet, talk of a ?benchmark? contract settlement seems premature.
However, continued supply-side underperformance coupled with a stronger steel outlook means the market balance continues to tighten and near-term fundamentals continue to improve.
On balance there is still a strong chance of contract settlement agreement in the near future, but the price level is still up for debate and there is the ongoing spectre of monthly pricing proposed by BHP. Near-term market fundamentals highly important Recent data points to a stall in the gradient of recovery post the Queensland flooding. While Hay Point and Gladstone have seen improvements in shipments through February; a cyclone-hit Abbot Point and, more worryingly, Dalrymple Bay Coal Terminal (DBCT) actually recorded falls.
While some of this can be attributed to port closures, with the rail lines back operating close to full capacity it suggests that mine supply is struggling and the chain is now fully de-stocked.Overall, coal shipments showed no signs of recovery during February
Furthermore, with further rainfall in the Bowen Basin last week and DBCT and Hay Point terminals again shut for inclement weather at the start of this week, sub-optimal supply is likely to continue through March.
As such, we reiterate that the seaborne market is being undersupplied week after week, and there is likely to have been a shortfall of 6?7mt through 1Q, even with US suppliers swinging to the rescue.
This degree of undersupply has necessitated strong de-stocking through the chain, including the steelmakers. The steel mills were savvy enough to stock up on coal during 2H 2010 such that they were not immediately panicked by Australian disruption.There was some overstocking of metallurgical coal in 2H 2010, but supplies will be running down every day
However, with key manufacturing lead indicators continuing to surprise on the upside, steel demand conditions continue to improve. As steel production continues rising, steelmakers will now be feeling the pressure as inventories are continually drawn down, and someone becomes incrementally more desperate for coal each day.
On balance there is still a strong chance of agreement in the near future, but the price level is still up for debate and it seems steelmakers are already preparing to pass through a cost push.
The other area clouding the likely contract settlement is the ongoing spectre of monthly pricing being proposed by BHP Billiton (BHP). There is no doubt the steelmakers are staunchly against this, as are many other suppliers. As such, we expect BHP to go it alone at the moment, with other suppliers focusing on quarterly agreements.
In our view, a market where both buyers and sellers operate on a range of contract lengths is natural, as it allows the price risk portfolio to be spread. The difficulty remains the lack of consistent indices to price off ? unlike iron ore, where the indices trade within ~2% of each other, for coking coal the indices have remained generally misaligned through this ?price shock? period.
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