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.