DJ Perfect Storm For Thermal Coal In 2008, Mkt Strong To 2011-ML10/03/2008 01:25PM AEST SYDNEY (Dow Jones)--A "perfect storm" is brewing for thermal coal prices in 2008 following China's temporary ban on thermal coal exports, floods in Australia and Indonesia and infrastructure constraints in Australia and South Africa, Merrill Lynch said Monday in a report.
Raising its forecast by 69% to US$135 a metric ton, free-on-board for the 2008 Japanese financial year, more than twice last year's $55.50/ton, FOB, Merrill also said it expects the market to stay undersupplied for the next three years.
Coal stocks such as Tambang Batubara Bukit Asam (PTBA.JK), Bumi Resources (BUMI.JK), Straits Resources Ltd. (SRL.AU), Felix Resources Ltd. (FLX.AU) and Aquila Resources Ltd. (AQA.AU) are likely to benefit from the coal market's strength, as will coal indices such as the MLCX Coal indices, Merrill said.
Ongoing power supply issues in South Africa will result in 10-15 million tons lost thermal coal exports in the next four yours as state-owned power utility Eskom looks to build up stocks and additional quantities of coal.
In China, there is industry speculation the coal export ban will be extended, but it looks more likely there will be lower export licenses for this year, maybe as low as 40 million tons, down from 70 million tons last year, Merrill said.
Meanwhile, the extraordinary robustness of demand growth, in the face of a spot price spike and an imminent massive hike in contract prices, highlights the strongly price-inelastic nature of thermal coal demand. Spot prices in Newcastle, Australia are up 50% at $135/ton FOB since December, and Richard's Bay in South Africa up 20% since December at $114/ton, FOB.
-By Elisabeth Behrmann, Dow Jones Newswires; 61-2-8235-2965; [email protected]
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