Coking Coal Prices Might Jump 33 Percent
Pittsburgh Tribune-Review
8 January 2011
By staff and wire reports
Coal companies like Consol Energy Inc. that produce coking coal for
steelmaking will benefit from the Australia floods that disrupted its
huge output and might boost those coal prices by as much as 33 percent,
industry experts said Thursday.
Prices may increase to between $270 and $300 a ton, analysts said.
Steel mills in Asia agreed to pay $225 a ton for the three months
starting Jan. 1, Bank of America Merrill Lynch analysts said.
Mines in the flooded region of Queensland account for most of the
premium hard coking coal supply globally, said Alex Tonks, a commodity
strategist at Bank of America Merrill Lynch in Sydney. About 37 percent
of the world's traded coking coal is affected, according to analysts
from Macquarie.
"A lot of operations have been impacted," Tonks said.
"It will be good times for the U.S. coking coal guys," said James
Thompson, managing editor for U.S. Coal Review, a trade
publication in Knoxville, Tenn. "The U.S. producers will have the
opportunity to replace the Australian coal.
"We're seeing more demand for U.S. coal, and we'll see higher prices,"
he said.
One is likely to be Cecil-based Consol, which mines coking coal at its
Buchanan mine in western Virginia, Thompson said.
Consol and its partner, Xcoal Energy & Resources, a Latrobe-based
coal export firm, "are looking to capture higher prices for the coal we
export in 2011," said Consol spokesman Daniel Zajdel.
Consol, the largest coal exporter in the United States, ships some
high-volume metallurgical coal to China and a small amount of
low-volatility metallurgical coal from its Buchanan mine. Most of
Buchanan's roughly 3 million metric tons of exports are shipped from
the Norfolk area, Zajdel said.
Alpha Natural Resources Inc., which operates the Cumberland and Emerald
mines in Greene County, and Patriot Coal Corp., with mines in West
Virginia, are among other producers that stand to benefit from the
restricted shipping and production in Australia, said John Miller, a
markets editor for the coal team at Platt's, which provides energy and
commodities information.
Australian prices may climb to $270 a ton for three-month contracts,
starting April 1, as the floods threaten to take as much as 10 million
tons of metallurgical coal out of the market, said Colin Hamilton, a
London-based Macquarie analyst.
There is speculation that coking coal prices may reach $300 a ton,
Thompson said, but the ceiling may be determined by just how much raw
material price hikes the steelmakers can stand.
As the coking coal prices rise and demand becomes restricted, some
customers may "trade down" to get a mixture of high-quality and
lower-quality coal, Miller said.
Flooding is also affecting thermal coal used by power stations, driving
the price of supplies at the port of Newcastle in Australia's New South
Wales, the benchmark for Asia, to the most in 27 months. Prices jumped
3 percent to $126.10 a ton in the week ended Dec. 31, the most since
Oct. 2008, according to IHS McCloskey, a Petersfield, Britain-based
provider of coal data.
Coking coal suppliers traditionally held annual talks with steelmakers
to fix benchmark contracts for the 12 months from April 1, the start of
the Japanese financial year. BHP Billiton has urged the industry to
move to short-term deals to make prices more responsive to market
changes. It agreed with JFE Holdings to the first three-month accord in
March last year.
Global steel demand is forecast to reach a record 1.34 billion tons in
2011, the World Steel Association said in October. The biggest
producers are in China, accounting for about 45 percent of the world's
production. Australia shipped 259 million tons of coal for steel and
power in 2009, the World Coal Association reported on its website.