Steam coal prices set to hit record highs

Thursday, 10 Feb 2011
Mr Tony D’Altorio of Investment U Research has opined that “Oil has stolen the headlines recently thanks to Brent crude trading above USD 100 a barrel. But it’s still well below its record high. Not so much with thermal coal yet energy investors too often favor oil and natural gas over this resource.”

Thermal coal prices quietly trended higher after the 2009-10 annual contracts were set at a mere USD 71 a tonne. But recently, the market has taken a powerful shot of adrenaline. Prices have jumped sharply amid supply disruptions in key coal exporting countries, such as Australia. Spot prices shot up to USD 140 in early January, though they have fallen back since to about USD 125.
This month, Asia’s utilities and coal mining companies will be holding their secretive, annual talks. Those extremely important meetings set the annual fixed prices for thermal coal April-March.

The industry expects record prices for these new contracts well above the 2008-09 peak of USD 125 a tonne. The estimates for the annual coal contracts range from a low of USD 130 a tonne to a high of USD 145 per tonne. But either way, it will be far above the USD 98 per tonne set last year.
The thermal coal market moved to spot trading in the early 2000s. But most of the large mining companies still keep annual contracts with utilities in Japan, South Korea and Taiwan and elsewhere. Annual contracts set the price directly or indirectly for about a third of the 730 million metric ton seaborne thermal coal market. And they also set the tone for the spot market.
Australia’s coal rich state of Queensland keeps getting pounded with heavy rains and tropical cyclones. Meanwhile Indonesia, Columbia and South Africa have suffered under similarly bad weather.

Emmanuel Fages coal analyst at Societe Generale, summed up the global outlook said that “There seem to be rains in every place where coal is produced these days.”
Plus, a severe shortage of railway cars is hurting output in Russia, another large thermal coal exporter.
The disruption to global coal supplies has coincided with a rebound in demand for the thermal variety. On the demand side, the traditional big three Asian markets of Japan, South Korea and Taiwan have increased buying on the back of stronger economic growth. Meanwhile, India and China have recently emerged as major thermal coal buyers. Together, they imported 190 million tonnes.(Sourced from www.investmentu.com)