thermal coal action

From an email from Goldman Sachs

COMMODITIES ANALYSIS; Thermal Coal Market Developments

Thermal Coal: FOB Price Hits $100/t

Thermal coal prices have surged higher in the past few days with FOB Richards Bay (South Africa) beating the oil market to the $100 mark! On Friday globalCOAL reported a February 2008 delivery transaction for 75,000t at a record $100/t FOB Richards Bay, this was closely followed by a March 2008 trade at $101/t.

Coal buyers are in "panic mode" as strong demand from India has coincided with a series of supply disruptions/constraints, the latest being a fire at an electrical sub-station on the Richards Bay rail line which could reduce capacity on the line by 50% for two weeks. Pacific Basin markets have also tightened significantly in recent weeks driven by continued strong demand from all major buyers (most notably India) at a time of worsening infrastructure constraints at the Newcastle terminal and a growing awareness that additional shipments of Indonesian sub-bituminous coal will be insufficient to meet the needs of Asian buyers. The McCloskey Coal Newcastle FOB marker increased by $8/t last week to finish the week at a record $93/t and at least one physical deal was reported at $97/t FOB for February loading.

With demand showing no sign of easing and the prospect of a substantial drop in Q1-08 shipments through Newcastle port (as tonnage quotas get scaled back), we believe spot thermal coal prices will remain very well supported during the annual contract negotiation period.

Following recent meetings with coal industry participants in Tokyo we understand that major Australian coal shippers are now targeting floor prices of ~$85/t for annual contracts with Japanese power utilities. This compares with the current contract price of ~$56/t and our current 2008/09 forecast of $75/t.

The recent surge in thermal coal prices and extreme tightness in the merchant coke market will also have positive repercussions for PCI pricing.

Our coal price forecasts are currently under review.