Asian Thermal Coal Contracts May Rise 36% to Record After Rains

By Ben Sharples - Feb 14, 2011
Asian utilities begin negotiations with coal producers this week and may be forced to pay as much as 36 percent more for their fuel after heavy rain in Australia, Indonesia, South Africa and Colombia disrupted output.

Prices for the year starting April 1 may increase to between $125 and $133 a metric ton, analysts from Bank of America Merrill Lynch, UOB-Kay Hian Ltd., Citigroup Inc. and National Australia Bank Ltd. said. Japanese utilities agreed to pay Xstrata Plc $98 a ton for the 12 months starting April 1, 2010, the company said in August.
“There are still lingering supply concerns around the place, not just in Australia,” Mark Pervan, head of commodity research at Australia & New Zealand Banking Group Ltd. in Melbourne, said by telephone. The bank has forecast contract prices may rise to $125 a ton.

Heavy rain has crimped output in Colombia, Indonesia and Australia, where flooding in December and January shut mines and damaged rail lines in Queensland, the nation’s biggest coal-producing state. Prices more than doubled to a record $125 a ton in 2008 after floods disrupted supply from the state. Contract negotiations start this week, according to Citigroup.
While prices of the fuel for immediate delivery “have eased back” after increasing to a two-year high last month, “the focus will be on the longer-term outlook,” Citigroup analysts said in a Feb. 11 note. “We still see strong demand growth and expect contract prices to be settled at record highs.” The bank forecast contract prices at $130 a ton.

Newcastle Price The price for thermal coal at the port of Newcastle in New South Wales, the benchmark for Asia, rose to $138.50 a metric ton in the week ended Jan. 14, the highest since September 2008, according to IHS McCloskey, a Petersfield, U.K.-based provider of data. It was at $120.75 in the week ended Feb. 11.
Queensland exports about 50 million tons of thermal coal each year, according to Macquarie Group Ltd. Shipments of the power station variety may be reduced by more than 5 million tons after a landslide shut a rail network that serves mines operated by Peabody Energy Corp. and New Hope Corp., Citigroup analysts, led by Daniel Hynes, said in the Feb. 11 report.
Merrill Lynch analysts led by Sydney-based Alex Tonks said contract prices may rise to $125 a ton, and National Australia Bank Ltd. minerals and energy economist, Ben Westmore, said they may increase to $130 a ton. UOB-Kay Hian Hong Kong-based analyst Helen Lau said they may reach $133 a ton.
Annual accords between mining companies and customers may be agreed “by mid-to-late March,” Australia & New Zealand Banking Group’s Pervan said. “Xstrata has become the number one player in the market. It’s their deal with a Japanese utility, usually Tokyo Electric,” that sets the benchmark for prices.
(sourced:bloomberg)
Tags: Asian Thermal coal contracts, heavy rains, Bank of America Merrill Lynch, UOB-Kay Hian Ltd., Citigroup Inc., National Australia Bank Ltd, Xstrata Plc, Newcastle coal, Tokyo