Coal market set to sizzle further Mumbai: Coal prices that soared in 2008 could rise higher and stay at elevated levels due to ongoing structural shortages that could go on for a number of years. Developments on both demand and supply side are seen impacting the market. The major price driver is, of course, growing demand from China and India coupled with delays in the completion of coal mine expansions in the current and future major coal exporting countries.
More India business stories
As a result, coal price forecasts – both short and medium-term – have been revised upward by analysts at Macquarie Research Commodities. “We have made major changes to our short and medium-term coal price forecasts.
These reflect the recent soaring spot and contract market prices for thermal and coking coal as a result of the stronger-than-expected demand in 2007-08 and also significant production losses in many coal producing areas, particularly Australia,” analysts said.
Price Performance
Coal market has witnessed some extraordinary price performance in the last one year.
From $ 85–98 a tonne free-on-board (fob), hard coking coal prices have risen on an average by over 200 per cent to $ 285–300 a tonne range for Australian and Canadian suppliers.
In case of semi-soft, semi-hard and low-volatile PCI coals, even bigger rises have been achieved.
The significant prices for the metallurgical coals comes after two years of price declines, when the market appeared to be weakening due to a pullback of China from the import market, analysts pointed out, adding that the weaker Chinese trend and massive capital cost escalations for new coking coal mines resulted in postponement of investment in new mines.
Structural Shortage
With rising expectation that Chinese steel mills will face serious shortage of met coal in the coming years, supplies are unlikely to grow as fast as demand which is set to create a structural shortage for years.
In case of thermal coal, China remains a key unknown and potentially could lead to a much larger price rise in this product going forward. Another destabilising factor in the thermal coal market, Macquarie pointed out, is that semi-soft prices are likely to be concluded at close to $ 240 a tonne fob (or above), $ 115 a tonne higher than thermal.
Given that many Australian thermal coal suppliers have some flexibility to switch sales from thermal to semi-soft or soft-coking coals, this could create a shortage of thermal later in 2008. India is also being closely watched by supplier nations. Steelmaking in the country is rising rapidly and coal imports are expanding. Large additions to steelmaking capacity in India and Brazil in the coming year could significantly boost demand and keep the coking coal market tight.
Tips to book profits in a falling market! Click here
Indo-Japan Demand
For the thermal coal market, an important market driver would be strong Indian and Japanese demand, coupled with the move of China from a significant net exporter to balanced status in 2007.
Thermal coal supplies at 605 million tonnes (mt) could be short of demand (sea-borne) estimated at 612 mt. Demand from India is placed at 34 mt for 2008 rising progressively to 38 mt, 45 mt, 55 mt and 65 mt in the subsequent years till 2012.
From $ 55 a tonne fob in 2007, thermal coal prices are forecast at $ 125 a tonne in 2008 and even higher at $ 180 a tonne during 2009 and 2010 after which prices may begin to decline.
Met coal market could face a sharper 6 mt supply shortfall in 2008 which will decline to 2 mt in 2009 and stay positive thereafter for three years. Indian demand for met coal that was 25 mt in 2007 is projected to rise to 29 mt in 2008 and then on to 33 mt, 38 mt, 42 mt and 48 mt in the following years.
More India business stories
The coal market is already sizzling with sharp price spurts. Together with the recent depreciation of the rupee and little prospect of firming anytime soon, imported coal is becoming more expensive. Forecast of further price increases should alert importers here. Long-term planning is the key to mitigating the price risks in the marketplace
source: http://sify.com 18 July 2008
BWN Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
(20min delay)