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Tuesday, 20 October 09
COAL PRICES TO SURGE IN 2010 DESPITE AMPLE SUPPLY
 Commodity Online reported that, Coal prices are indeed destined to go higher as they follow the rise of ‘coal currencies’ such as Australian Dollar (AUD), South African Rand (ZAR) and Columbian Peso (COP). Strong emerging market demand is also pushing up prices although it may be limited by abundant stocks on coal producing countries.
The BofA Merrill Lynch Global Report on energy pointed out that many “oil currencies” including UAE Dirhams (AED) and Saudi Arabian Riyal (SAR) are pegged to the US dollar, but coal exporters tend to keep a free float therefore currencies linked to coal have outperformed both their emerging market and G-10 peers. The report notes that near upside gains in steam coal will be limited to US dollar weakness.
Mirroring forex, prompt API-2 thermal coal prices have jumped 9% in the past month reaching $73/mt—slightly ahead of crude oil and petroleum products—while calendar prices for 2010 have recovered to a six-week high of over $84/mt. With coal inventories swelling to record highs around the globe, any near-term upside pressure on front-month coal prices above $80/mt is likely to be limited to further USD weakness. Although BofA Merrill Lynch Global report said that steam coal forwards to flatten significantly over the next six months as the recovery takes hold, excess supply will still dampen any upside pressure on near-dated spreads in the short-run.
The outlook for thermal coal markets should improve significantly and high inventories will be burned down next year as coal is set to regain market share relative to natural gas. Chinese and Indian demand for coal is already growing strongly. With a demand recovery coming in the rest of Asia, South Africa and the Atlantic Basin, the market is likely to tighten pretty quickly in 2010.
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As a result, API-4 South African coal prices have appreciated strongly in USD but not so much in local currencies. This situation arises because some of the world’s largest coal exporters like South Africa, Australia, and Colombia keep a free float. The logic supporting the recent move in coal prices is compelling. On the one hand, coal happens to be exported out of countries with a free-floating currency regime. On the other side, coal is the fuel of choice in an EM-led domestic recovery, as China, India, and many other emerging economies will require bucket-loads of cheap energy to maintain a fast pace of growth. Having said that, coal prices have lagged the rapid weakening of the trade-weighteddollar, suggesting coal prices could trend higher only to catch up with the recent currency moves, BofA Merrill Lynch Report said.
A wall of inventories will cap steam coal near-term
With coal inventories swelling to new record highs around the globe, any nearterm upside pressure in front-month coal prices above $80/mt will require further dollar weakness. Europe, a key consuming area for thermal coal, currently holds record stockpiles of Colombian and Russian material at its main ports in Amsterdam, Antwerp, and Rotterdam. European utilities are also awash with coal. In the US, the situation is even more pronounced, with inventories held at utilities standing at 70 days of consumption, 13 days higher than last year. In fact, coal inventories are pretty healthy everywhere, including parts of the Asia Pacific. India, and China are an exception as stocks seem to be drawing there at the moment.
Rising coal production will also limit upside on prices
Another factor limiting the near-term upside on coal is the healthy growth in supply. Russia seems to have turned its corner following an earlier slump in coal exports. During the first eight months of this year, Russian exports to Europe increased 19% relative to last year driven by rail and port de-bottlenecking. The export performance out of Australia has improved significantly in the past weeks and currently stands at the highest in over four months. Port congestion is down to just 20 ships, from 42 a few weeks ago, and should continue to improve gradually throughout next year as Newcastle adds a third terminal in Q1. Production in Colombia is also looking a lot healthier.
However, the thermal coal market will rebalance in 2010...
None of these bearish factors will last and we expect a rebound in global coal prices next year. The global thermal coal market will firmly rebalance primarily from the demand-side, BofA Merrill Lynch report stated. It expects the demand in Pacific region to outstrip that of West. demand in the Pacific outstrips demand in the West. Chinese and Indian demand for coal is already growing pretty strongly and once we add a demand recovery in the rest of Asia Pacific, South Africa, and the Atlantic Basin, the current excess supply in the market will be soaked up pretty quickly. A combination of power generation growth, industrial demand recovery, generation capacity growth, and fuel switching will firmly support global coal demand next year at around 3% growth, from -0.3% this year, according to BofA Merrill Lynch Global Report.
...as demand for coal is recovering, led by China and India
Looking at the main demand drivers in turn, demand in China and India is already growing pretty rapidly, driven by the upsurge in electricity generation and strategic stock-building of the past months. In the first eight months of this year, China imported 74 million mt of coal, up from 29 million mt in the prior year, a truly mind-boggling increase. As exports more than halved in the same period, China firmly switched from being a net exporter last year (4.8 million mt) to being a net importer (59 million mt YTD) (Chart 12). China has been moving away from Australia and Indonesia, at the margin, and started to source coal from farther away places like Russia, South Africa, Canada and Colombia— helped by low freight rates.
With prices below $100/t, China will remain a net importer
Paradoxically, the higher Chinese imports have occurred at a time that domestic production has surged to a new record. As regulators have kept domestic coal prices high relative to seaborne prices, Chinese utilities have moved to imported coal. Regional distribution bottlenecks, particularly in the railway system, have also continued to prevent the domestically produced coal to travel from the inner regions to the coastal demand centers, hence supporting coal prices in the East.
Coal demand in Asia Pacific is improving very rapidly...
In India, an acute shortage of domestic coal and a string of supply constraints have driven coal imports sharply higher. This material has come mainly from. Only 5 years ago, India hardly imported any coal but it now soaks up 70 million tons per annum. Bucking the global trend, Indian coal stocks are critically low due to a combination of monsoon rains, domestic mine strikes and stagnant production growth.
Meanwhile, coalfired generation growth is back to record highs but is now reportedly being constrained by the lack of coal (Chart 15). At this rate, coal supply shortages in India are likely to be prevalent for a long time. The government set stringent targets for electricity generation capacity and the share of coal-fired plants in the generation mix is set to rise to 57% by 2010, from 53% currently. With domestic demand for coal likely to grow unabated, Indian companies are now in the
process of buying up coal assets in South Africa, Indonesia, and Australia.
...and will eventually pull global thermal coal prices higher
While China and India currently stand out, demand will also come back strongly in other Asian countries, such as Korea, Taiwan, and Thailand. Japan is probably the only country that will not exert strong international buying pressure because domestic nuclear power generation capacity is coming back. Steadier demand growth is not only confined to Asia though. Power generation in South Africa, where 70% of capacity is coal-fired, is now almost back at pre-crisis levels. Relative to last year, power output is down by a meager 1.2%. Once coal demand returns to trend growth of 5%, it will quickly outpace production growth, which has remained fairly constant in the past years. Moreover, Eskom is constructing a number of coal-fired power stations, probably helping to drive coal demand higher.
Gas to coal fuel-switching will boost US, Europe demand
Capacity growth could also be a significant driver in the United States where a number of new coal-fired plants are coming to the market. Out of 19 GW potentially added next year, 7.5 GW alone will be coal-fired. No doubt, the recession has significantly reduced the demand for power and expanded reserve margins. However, coal is likely to gain back significant market share next year as the recovery sets in. Although gas-fired plants have displaced coal-fired generation
recently, this situation is not expected to last. Importantly, coal-to-gas switching occurred on the back of exceptionally low gas prices. BofA Merrill Lynch Global Report said that the spread of USnatural gas to coal will widen again next year, supporting coal demand.
In Europe, a toxic combination of falling power and industrial demand together with cheap natural gas prices has also contributed to loosen up the demand for the fossil fuel. Power supplies are likely to be reasonably comfortable this winter due to high natural gas inventories. Still, we expect this situation to reverse rapidly in the first half of next year. The lagged impact from rising oil prices will feed through to indexed European natural gas. Unless CO2 prices rise sharply—
which is unlikely given the current oversupply of permits—coal demand, which has also suffered from fuel switching, will pick up fairly significantly.
Economic recovery may push coal to over $100/t in 2010
In sum, the outlook for the thermal coal markets could improve significantly going forward.. Increased demand coupled with stronger “coal currencies”, could push European API-2 coal prices above $100/mt by the middle of next year, the report added.
Dry freight will buck the trend, remaining range-bound
Coal demand is set to eventually pick up driving up coal prices next year but freight rates will be low. A massive order book of new dry bulk ships will continue to push new ships online at a very rapid rate. Although demand for dry bulk goods, importantly iron ore, is improving everywhere as steel capacity utilization is rising, shipping bottlenecks will not reappear for another 2-3 years at the earliest, the BofA Merrill Lynch Global Report added.
Source: Commodity Online
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Wednesday, 28 October 09
MIDDLE EAST COAL EYEING INDIAN POWER PLANTS IN EXCHANGE FOR LONG TERM COAL SUPPLY
Reuters reported that UAE's Middle East Coal is in talks to buy equity stakes in India's power plants in exchange for long term coal supply.
ME ...
Wednesday, 28 October 09
INVESTMENT IN MINING SECTOR HAMPERED BY LATE REGULATIONS
The Jakarta Post reported that, Indonesia may have to wait for a potential massive inflow of new investment into the mining sector due to delays in ...
Tuesday, 27 October 09
CHINA'S SEPT. COAL IMPORTS RISE AS ECONOMY RECOVERS
Bloomberg reported that, China, the world’s largest coal user and producer, increased imports of the fuel in September to meet rising domest ...
Monday, 26 October 09
DARWIN EYES PRIVATE INVESTMENT
The Jakarta Post reported that, the new energy and ministerial resources minister, Darwin Zahedy Saleh, has set his sights on accelerating the reali ...
Sunday, 25 October 09
THE FUTURE FREIGHT MARKET IS EXPECTED TO HAVE POSITIVE DIRECTION - VISTAAR
COALspot.com (Singapore): According to Vistaar Shipping an experienced ship operator in Singapore, the BDI shot up this week (19-24 October) by abou ...
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- Wood Mackenzie - Singapore
- Wilmar Investment Holdings
- Standard Chartered Bank - UAE
- Iligan Light & Power Inc, Philippines
- Parry Sugars Refinery, India
- Maheswari Brothers Coal Limited - India
- Renaissance Capital - South Africa
- Kalimantan Lumbung Energi - Indonesia
- Global Coal Blending Company Limited - Australia
- Karbindo Abesyapradhi - Indoneisa
- Bank of Tokyo Mitsubishi UFJ Ltd
- The University of Queensland
- Port Waratah Coal Services - Australia
- Ministry of Transport, Egypt
- Siam City Cement PLC, Thailand
- Anglo American - United Kingdom
- Uttam Galva Steels Limited - India
- Petron Corporation, Philippines
- GN Power Mariveles Coal Plant, Philippines
- Jindal Steel & Power Ltd - India
- Sojitz Corporation - Japan
- Therma Luzon, Inc, Philippines
- Kideco Jaya Agung - Indonesia
- Orica Mining Services - Indonesia
- Manunggal Multi Energi - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Australian Coal Association
- Savvy Resources Ltd - HongKong
- Bhushan Steel Limited - India
- Banpu Public Company Limited - Thailand
- India Bulls Power Limited - India
- Oldendorff Carriers - Singapore
- Ind-Barath Power Infra Limited - India
- Bayan Resources Tbk. - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Chamber of Mines of South Africa
- Karaikal Port Pvt Ltd - India
- Vizag Seaport Private Limited - India
- Billiton Holdings Pty Ltd - Australia
- Georgia Ports Authority, United States
- Grasim Industreis Ltd - India
- Bukit Makmur.PT - Indonesia
- Mjunction Services Limited - India
- McConnell Dowell - Australia
- Dalmia Cement Bharat India
- Sindya Power Generating Company Private Ltd
- Latin American Coal - Colombia
- Directorate General of MIneral and Coal - Indonesia
- New Zealand Coal & Carbon
- Salva Resources Pvt Ltd - India
- Trasteel International SA, Italy
- Meralco Power Generation, Philippines
- PowerSource Philippines DevCo
- Coal and Oil Company - UAE
- Metalloyd Limited - United Kingdom
- Central Electricity Authority - India
- Tata Chemicals Ltd - India
- Essar Steel Hazira Ltd - India
- Indika Energy - Indonesia
- The State Trading Corporation of India Ltd
- Baramulti Group, Indonesia
- Binh Thuan Hamico - Vietnam
- Independent Power Producers Association of India
- Coastal Gujarat Power Limited - India
- Sree Jayajothi Cements Limited - India
- Mintek Dendrill Indonesia
- ASAPP Information Group - India
- GMR Energy Limited - India
- Holcim Trading Pte Ltd - Singapore
- Thiess Contractors Indonesia
- Bhatia International Limited - India
- Semirara Mining and Power Corporation, Philippines
- Global Business Power Corporation, Philippines
- Ambuja Cements Ltd - India
- Riau Bara Harum - Indonesia
- TeaM Sual Corporation - Philippines
- Intertek Mineral Services - Indonesia
- Parliament of New Zealand
- Kepco SPC Power Corporation, Philippines
- Price Waterhouse Coopers - Russia
- Aditya Birla Group - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- IEA Clean Coal Centre - UK
- Goldman Sachs - Singapore
- Eastern Coal Council - USA
- MS Steel International - UAE
- Eastern Energy - Thailand
- Sakthi Sugars Limited - India
- Meenaskhi Energy Private Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Australian Commodity Traders Exchange
- Romanian Commodities Exchange
- Thai Mozambique Logistica
- London Commodity Brokers - England
- Directorate Of Revenue Intelligence - India
- Posco Energy - South Korea
- Mercator Lines Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- European Bulk Services B.V. - Netherlands
- Vedanta Resources Plc - India
- Bukit Asam (Persero) Tbk - Indonesia
- Sical Logistics Limited - India
- Heidelberg Cement - Germany
- PTC India Limited - India
- Alfred C Toepfer International GmbH - Germany
- Asmin Koalindo Tuhup - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Kumho Petrochemical, South Korea
- SMG Consultants - Indonesia
- Rio Tinto Coal - Australia
- The Treasury - Australian Government
- Aboitiz Power Corporation - Philippines
- Africa Commodities Group - South Africa
- Electricity Authority, New Zealand
- LBH Netherlands Bv - Netherlands
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Gujarat Electricity Regulatory Commission - India
- Global Green Power PLC Corporation, Philippines
- Singapore Mercantile Exchange
- Miang Besar Coal Terminal - Indonesia
- Sarangani Energy Corporation, Philippines
- Antam Resourcindo - Indonesia
- Interocean Group of Companies - India
- Indian Oil Corporation Limited
- Agrawal Coal Company - India
- ICICI Bank Limited - India
- Ceylon Electricity Board - Sri Lanka
- Energy Development Corp, Philippines
- CIMB Investment Bank - Malaysia
- Sinarmas Energy and Mining - Indonesia
- San Jose City I Power Corp, Philippines
- Energy Link Ltd, New Zealand
- Kapuas Tunggal Persada - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Kobexindo Tractors - Indoneisa
- Bhoruka Overseas - Indonesia
- Bulk Trading Sa - Switzerland
- Indian Energy Exchange, India
- Lanco Infratech Ltd - India
- Minerals Council of Australia
- VISA Power Limited - India
- Bharathi Cement Corporation - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Pendopo Energi Batubara - Indonesia
- Toyota Tsusho Corporation, Japan
- Bahari Cakrawala Sebuku - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Rashtriya Ispat Nigam Limited - India
- Carbofer General Trading SA - India
- SMC Global Power, Philippines
- Planning Commission, India
- Chettinad Cement Corporation Ltd - India
- Coalindo Energy - Indonesia
- Barasentosa Lestari - Indonesia
- Power Finance Corporation Ltd., India
- Cigading International Bulk Terminal - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Timah Investasi Mineral - Indoneisa
- White Energy Company Limited
- Kartika Selabumi Mining - Indonesia
- Attock Cement Pakistan Limited
- Madhucon Powers Ltd - India
- Simpson Spence & Young - Indonesia
- Ministry of Mines - Canada
- Medco Energi Mining Internasional
- Kohat Cement Company Ltd. - Pakistan
- Commonwealth Bank - Australia
- Xindia Steels Limited - India
- Marubeni Corporation - India
- Indogreen Group - Indonesia
- Star Paper Mills Limited - India
- Bukit Baiduri Energy - Indonesia
- Samtan Co., Ltd - South Korea
- Orica Australia Pty. Ltd.
- TNB Fuel Sdn Bhd - Malaysia
- AsiaOL BioFuels Corp., Philippines
- Merrill Lynch Commodities Europe
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- GVK Power & Infra Limited - India
- Edison Trading Spa - Italy
- Mercuria Energy - Indonesia
- International Coal Ventures Pvt Ltd - India
- Siam City Cement - Thailand
- Formosa Plastics Group - Taiwan
- OPG Power Generation Pvt Ltd - India
- Deloitte Consulting - India
- Indonesian Coal Mining Association
- Globalindo Alam Lestari - Indonesia
- IHS Mccloskey Coal Group - USA
- Malabar Cements Ltd - India
- South Luzon Thermal Energy Corporation
- Larsen & Toubro Limited - India
- Borneo Indobara - Indonesia
- CNBM International Corporation - China
- Straits Asia Resources Limited - Singapore
- Gujarat Mineral Development Corp Ltd - India
- Bangladesh Power Developement Board
- GAC Shipping (India) Pvt Ltd
- Jorong Barutama Greston.PT - Indonesia
- Gujarat Sidhee Cement - India
- Economic Council, Georgia
- Tamil Nadu electricity Board
- Jaiprakash Power Ventures ltd
- Kaltim Prima Coal - Indonesia
- Electricity Generating Authority of Thailand
- Semirara Mining Corp, Philippines
- Indo Tambangraya Megah - Indonesia
- Central Java Power - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- SN Aboitiz Power Inc, Philippines
- Ministry of Finance - Indonesia
- Altura Mining Limited, Indonesia
- Cement Manufacturers Association - India
- Makarim & Taira - Indonesia
- Videocon Industries ltd - India
- PNOC Exploration Corporation - Philippines
- Leighton Contractors Pty Ltd - Australia
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