US coal company stocks up on higher contract price Reuters reported that shares of US coal companies soared on Monday after one producer Alpha Natural Resources said it was selling some coal next year at USD 79 per ton, the highest price seen yet for contract purchases. Alpha said it had reached commitments on approximately 5 million tons of planned thermal production for 2009, at an average realization of approximately USD 79 per ton.
Mr Jeremy Sussman analyst of Natixis Bleichroeder said that "It's moving the whole space up. Spot prices have been higher, but that's the highest we've seen of any significant volume."
According to the industry newsletter, Appalachian steam coal prices have risen approximately 75% in 2008
Firm trend in coal prices seen continuing in long term The coal market, which has seen some incredible price performance in recent months, is unlikely to peak anytime soon going by market dynamics. Indeed, the current price fire is expected to rage for some years. Spot and contract market prices have spurted in the wake of stronger than expected demand in 2007 coupled with significant production losses in many coal producing areas, particularly, Australia. While coking coal looks as though it would remain tight enough for producers to achieve at least a rollover (flat prices), at today’s incredibly high prices for another year in 2009, for thermal coal prices should move even higher as supplies get tighter following producers switching from producing thermal coal to semi-soft and soft coking coals, according to Macquarie Research Commodities.
Indeed, demand from China and India is seen as a key factor that can create a strong upside potential for prices. Faltering supply growth can add further upward thrust.
Price rise
The coal market witnessed some amazing price increases. In a year’s time, hard coking coal prices zoomed from $85-98 a tonne free-on-board to the $285-300 a tonne range for Australian and Canadian suppliers.
Price rises bigger than 250 per cent have been achieved in semi-soft, semi-hard and low volatile PCI coals. According to Macquarie, important in driving prices higher has been strong Indian and Japanese demand for thermal coal, coupled with the move of China from a significant net exporter to a balanced state in 2007.
Large surge
In coking coals, there was an unexpectedly large surge in Eastern European demand for hard coking coal following serious mine accidents in Russia and Ukraine. Large additions to steelmaking capacity in India and Brazil in the coming years could also significantly boost demand and keep the coking coal market tight, experts assert.
For major coal types, Macquarie has revised its price forecast up sharply. For hard coking coal, the revised price forecast for 2008 and 2009 is $ 300 a tonne, while forecast for semi-soft coking coal is $ 220 a tonne. From $125 a tonne in 2008, thermal coal prices are forecast to rise to $ 140 a tonne next year.
The revised price forecasts also take into account exchange rate pressures on the industry and the new reality that pricing is related to other energy forms such as oil.
The Business Line - 9-May-08
Coal situation worsens at thermal stations Coal reserves at power stations have hit a record low. Nearly a third of the country’s thermal stations are now reported to be facing “critical stocks”, where coal stocks are expected to last less than seven days.
Of the 77 thermal stations in the country, 25 have now been bracketed as having “critical stocks”, of which 13 are reported to be “super critical”, with precariously low levels of coal stocks of under four days, according to the Government’s latest data on coal stock positions at power stations (up to May 5).
While a coal shortage has been brewing since the beginning of last year, domestic production is unlikely to be ramped up significantly in the near future. The import option is increasingly getting tougher as China, which is also facing low domestic reserves and acute power shortage, has stepped up coal purchases internationally.
Global price rising
The resultant rise in the global spot prices of coal, which have shot up to over $140 per tonne in Australia and above $125 per tonne in South Africa, could further stymie plans by Indian utilities to use imported coal to tide over shortages.
NTPC, which has 15 coal-fired stations, has already reported loss of generation in four stations due to coal shortages last fiscal, with the Farakka’s plant load factor dipping 4.66 per cent, and Kahalgaon, Talcher and Vindhyachal stations reporting partial outages.
Import plan
“We are currently managing on a day-to-day basis at some stations. A decision has already been taken to double imports to 5 million tonnes in 2008-09,” an NTPC official said.
Stations currently facing “super-critical” stocks include a number of super-thermal stations, including NTPC’s Ramagundam, Kahalgaon and Farakka stations.
Lower coal production by Coal India Ltd, higher than anticipated power generation at some stations and unloading constraints at others, combined with lower imports, have compounded the problem further.
Thermal stations are normally expected to hold coal stocks of between 15 and 30 days, with pithead stations expected to have stocks of 15 days or more, while others are expected to have stocks of 21-30 days.
