MCC 0.00% $16.01 macarthur coal limited

LINK--http://www.theaustralian.com.au/business/scramble-for-coal-...

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    LINK--http://www.theaustralian.com.au/business/scramble-for-coal-supply-heats-up/story-e6frg8zx-1225966648906


    STEELMAKERS are clamouring for longer coal-supply contracts to head off a challenge from China, according to Macarthur Coal's chief executive.

    Steel mills that previously negotiated three-year supply deals with Macarthur -- the world's biggest producer of pulverised coal -- are asking for terms of five years or longer when the contracts are renewed, CEO Nicole Hollows said.

    This reflects fears among steelmakers that the market will tighten in coming years if China's net imports of coal keep surging and demand in Europe and Brazil starts to rebound sharply after dipping for the past couple of years.

    "There's not enough coal on the seaborne market to keep China in place" if demand elsewhere in the world recovers to levels that existed at the start of the financial crisis in 2008, Ms Hollows said.

    China accounted for 47 per cent of global coal consumption last year, and has struggled in recent years to bring on new mines and expand production fast enough to meet its own needs.

    This has transformed seaborne coal markets, as the country has moved to fill the gap with supplies from overseas. Its net coal imports exceeded 106 million tonnes in the first nine months this year -- higher than the full-year level for 2009 -- and state companies have been aggressively acquiring overseas coal assets to secure supply.

    Brisbane-based Macarthur has tapped into this demand since 2008, selling its first cargoes of thermal coal used in power stations and high-ash pulverised coal from its mines in Queensland to China.

    Although shipments to China accounted for less than 10 per cent of Macarthur's sales, Ms Hollows said China's emergence as an "alternative market" had strengthened the company's hand in contract talks with its core customers in Asia, South America and Europe.

    "Any contract talks that are coming up are happening a lot sooner than later, and that's because customers want to ensure that they can actually get supply," she said. "What we've seen is that customers are a lot more focused on looking at ensuring they have longer-term volumes and they have those set in place for a longer period than has been normal in the past."

    Macarthur is targeting sales of 5 million tonnes of coal in the fiscal year ending June 30, 2011, nearly all in the form of pulverised coal. It plans to increase sales to 9.2 million tonnes by 2013-14, chiefly by bringing online new projects such as the Middlemount mine in Queensland which it owns with Gloucester Coal.

    Macarthur's dominant position in pulverised coal production and its exposure to rapidly growing markets in North Asia prompted Peabody Energy, the biggest US coal miner, to make a $3.8 billion takeover offer last year. That bid was rejected after it was opposed by Citic Resources Holdings, Macarthur's biggest shareholder with a 22.4 per cent stake.

    Ms Hollows said Macarthur remained confident that it would sell its coal for delivery in the January-March period at higher prices to the previous quarter, despite China this month stepping up its fight against a surprising jump in inflation.

    The People's Bank of China on November 19 raised banks' reserve requirements for the second time in as many weeks. The moves follow last month's increase in benchmark interest rates, the first in nearly three years. The State Council, the executive arm of China's government, has also announced several measures aimed at containing food and commodity prices.

    Ms Hollows said Macarthur's sales prices in the December quarter were hit by seasonal weakness and Chinese consumers running down inventories.

    "Probably the pendulum swung over too far (in the December quarter), and we think the price will come back," Ms Hollows said, citing a pick-up in global steel output and spot coal prices currently exceeding the quarterly benchmark.

    Longer term, Chinese investment in infrastructure, automobiles and property would continue to rise and boost demand for the key steelmaking ingredients, and this would underpin coal prices, she said.

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