Felix flush with coking coal supply * Font Size: Decrease...

Felix flush with coking coal supply

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Elisabeth Behrmann | November 15, 2008
Article from: The Australian

AUSTRALIAN coal producer Felix Resources has experienced no change in coking coal demand despite output cuts, and October was "the best month we have ever had", managing director Brian Flannery says.

"We supply north Asia and India, and we have not seen any changes. Steel mills are continuing with blast furnaces, though some electric furnaces have shut down," Mr Flannery said.

Separately, he also said the Brisbane-based miner was still in discussions with a number of third parties after announcing in July that it had received takeover approaches. However, he was silent on the number of suitors or how talks were progressing.

"We are watching the potential stimulus package from the G20 meeting with interest, although such a plan would take time to be felt. We sell all of our coal under long-term contracts with one-year pricing," Mr Flannery said.

The G20 leaders summit this weekend in Washington will focus mainly on the global economy and how to boost growth, including countries' stimulus plans.

Fellow Australian coking coal producer MacArthur Coal said this week it was bracing for a downturn in demand in the next two to three months, and major shareholder ArcelorMittal (MT) has reportedly cut its requirement for MacArthur's pulverised coal product.

ArcelorMittal, the world's biggest steel producer, has cut output by about 35 per cent in response to slowing demand.

Analysts expect cutbacks in the steel market to eventually feed through to coal miners.

Chinese steel producers have cut output by between 30 per cent and 50 per cent, but European and Brazilian mills have also decided to reduce production after steel prices fell massively -- albeit from very high levels -- earlier this year as producers passed on huge price increases in iron ore and coking coal.

"China buys very little coking coal, so rather than the steel cutbacks there, we are watching the outcome of the stimulus package," Mr Flannery said.

Benchmark coking coal prices shot to a record high of about $US320 a tonne for the Japanese financial year starting on April 1 because of floods that hampered output at many mines in Queensland's Bowen Basin.

Analysts, such as consultancy AME, expect prices to come down to around $US200 a tonne next year, with the risk skewed to the downside.