taken from another poster....David Uren | February 06,...

taken from another poster....

David Uren | February 06, 2008

AUSTRALIA'S coal and iron ore miners are close to settling massive price increases with Chinese and Japanese customers that will deliver a $30 billion bonanza to the nation's export revenue.

Severe bottlenecks at Australia's coal ports, and Queensland's floods, have sent the world spot prices for coal soaring.

Analysts believe coal prices will double, while Asian steel mills are expected to settle for a 60 per cent jump in iron ore prices.

Australia's export revenue from coal and iron ore is set to jump from $42 billion to more than $70 billion next year if the increases are achieved.

The revenue surge will also keep the pressure on inflation, taking unemployment lower and putting available capacity under greater stress.

The Treasury Department is holding a workshop on February 14, bringing together Reserve Bank officials, the private sector and academic economists, to consider the implications of the new impetus behind the commodity boom coming from India and China.

Coalminer Xstrata has offered to settle with Japanese steel mills for $US210 ($233) a tonne for coking coal from April, more than double the existing price of $US95.

But Citigroup's global head of commodities, Alan Heap, said the offer was made before the Queensland floods, which had pushed spot prices above that level. BHP Billiton has cancelled two trips to Tokyo to discuss coal pricing and is waiting to assess the final damage from the Queensland floods.

Disruptions to coal shipments out of Queensland's Dalrymple Bay port have recently worsened, forcing one of the mining companies to cancel contracted shipments.

Australia is by far the biggest supplier of coking coal, which is used for steel-making, supplying more than two-thirds of all world shipments, so the disruptions have had an immediate effect on prices.

Australia provides about a quarter of globally traded thermal coal, used by power stations, but its exports have dropped as miners have given preference to the higher-value coking coal.
Another major supplier of thermal coal, South Africa, also has severe problems with its rail and port systems.

Early discussions with Japanese utilities had both producers and consumers talking about a range of $US90 to $US100 a tonne, while a small Chinese shipper has settled for $US98 a tonne.

The first round of negotiations between iron ore miners and the Chinese steel mills finished about two weeks ago without a result.

"At the beginning, the mills were saying (a rise of) 30 per cent was the absolute maximum but by the end they were prepared to swallow 50 per cent," Mr Heap said.

The miners have shifted ground as well, and where they may have settled a month ago for a 50 per cent rise, they may now be aiming for a 70 per cent increase or more.

Citigroup's estimates are in line with other forecasts made by investment banks Goldman Sachs and UBS.

The soaring prices are a sharp break with history, as both coal and iron ore prices were essentially flat for about 30 years until 2004.

Citigroup chief economist Stephen Halmarick said that together with firmer prices for gold, Australia's terms of trade could rise by as much as another 10 per cent this year. "This is great news for growth, but will continue to put pressure on inflation."

He said the budget surplus would be higher than the previous government had expected, with the likelihood that the Government would allow the surplus to build, rather than returning it to taxpayers.