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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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Saturday, 24 October 09
NTPC SEEKS ALTERNATE COAL SUPPLY FOR KAHALGAON
State-run NTPC is looking at alternate sources of coal to fire its Kahalgaon (Bihar) and Farakka (West Bengal) and power stations, which are facing ...
Saturday, 24 October 09
ADANI, MMTC IN RACE TO SUPPLY COAL TO GSECL
Business-Standard reported that, as many as five companies are in fray to supply 15 lakh (1.5 million) metric tonnes of non-coking steam (ther ...
Saturday, 24 October 09
INDONESIA STATE POWER FIRM PLANS TO DELAY COAL SUPPLIES
Indonesia's state-controlled electricity company is negotiating with two coal producing firms to delay plans to supply coal to a power plant in Wes ...
Friday, 23 October 09
MONGOLIA LISTS 8 POTENTIAL BIDDERS FOR COAL PROJECT
Reuters reported that, Mongolia has shortlisted eight potential partners for its huge Tavan Tolgoi coking coal project, according to Temuulen Ganzor ...
Friday, 23 October 09
2010 WILL BE 'BRIDGE YEAR' FOR COAL - CONSOL CHIEF
Mining Weekly reported that, After a difficult 2009, 2010 will likely be a “bridge” year for the US coal industry, followed by improved ...
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- Sree Jayajothi Cements Limited - India
- SN Aboitiz Power Inc, Philippines
- South Luzon Thermal Energy Corporation
- Sakthi Sugars Limited - India
- Australian Coal Association
- Tamil Nadu electricity Board
- Agrawal Coal Company - India
- Global Green Power PLC Corporation, Philippines
- ICICI Bank Limited - India
- Aboitiz Power Corporation - Philippines
- Thiess Contractors Indonesia
- Electricity Generating Authority of Thailand
- Leighton Contractors Pty Ltd - Australia
- Toyota Tsusho Corporation, Japan
- Gujarat Sidhee Cement - India
- Gujarat Mineral Development Corp Ltd - India
- Maheswari Brothers Coal Limited - India
- Borneo Indobara - Indonesia
- Grasim Industreis Ltd - India
- Rashtriya Ispat Nigam Limited - India
- Miang Besar Coal Terminal - Indonesia
- Malabar Cements Ltd - India
- Directorate Of Revenue Intelligence - India
- Binh Thuan Hamico - Vietnam
- LBH Netherlands Bv - Netherlands
- Petrochimia International Co. Ltd.- Taiwan
- Renaissance Capital - South Africa
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Central Electricity Authority - India
- TeaM Sual Corporation - Philippines
- Orica Mining Services - Indonesia
- Minerals Council of Australia
- Posco Energy - South Korea
- Asmin Koalindo Tuhup - Indonesia
- Sojitz Corporation - Japan
- Rio Tinto Coal - Australia
- McConnell Dowell - Australia
- AsiaOL BioFuels Corp., Philippines
- Uttam Galva Steels Limited - India
- GMR Energy Limited - India
- Semirara Mining Corp, Philippines
- Ministry of Finance - Indonesia
- Ministry of Mines - Canada
- Vedanta Resources Plc - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Kideco Jaya Agung - Indonesia
- Manunggal Multi Energi - Indonesia
- Eastern Coal Council - USA
- Globalindo Alam Lestari - Indonesia
- Madhucon Powers Ltd - India
- Medco Energi Mining Internasional
- Oldendorff Carriers - Singapore
- Cigading International Bulk Terminal - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Makarim & Taira - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Kalimantan Lumbung Energi - Indonesia
- Indian Oil Corporation Limited
- Jindal Steel & Power Ltd - India
- Banpu Public Company Limited - Thailand
- Economic Council, Georgia
- Australian Commodity Traders Exchange
- Mercator Lines Limited - India
- Indogreen Group - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Savvy Resources Ltd - HongKong
- Merrill Lynch Commodities Europe
- Global Coal Blending Company Limited - Australia
- Bhushan Steel Limited - India
- Anglo American - United Kingdom
- Independent Power Producers Association of India
- Bangladesh Power Developement Board
- Power Finance Corporation Ltd., India
- Neyveli Lignite Corporation Ltd, - India
- Kepco SPC Power Corporation, Philippines
- Simpson Spence & Young - Indonesia
- Meenaskhi Energy Private Limited - India
- Trasteel International SA, Italy
- GVK Power & Infra Limited - India
- Ceylon Electricity Board - Sri Lanka
- Indo Tambangraya Megah - Indonesia
- Chamber of Mines of South Africa
- Krishnapatnam Port Company Ltd. - India
- Baramulti Group, Indonesia
- Ambuja Cements Ltd - India
- Marubeni Corporation - India
- Pipit Mutiara Jaya. PT, Indonesia
- Karbindo Abesyapradhi - Indoneisa
- San Jose City I Power Corp, Philippines
- Kumho Petrochemical, South Korea
- Sinarmas Energy and Mining - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Romanian Commodities Exchange
- SMG Consultants - Indonesia
- Wood Mackenzie - Singapore
- Sical Logistics Limited - India
- Therma Luzon, Inc, Philippines
- Lanco Infratech Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- Kohat Cement Company Ltd. - Pakistan
- SMC Global Power, Philippines
- Standard Chartered Bank - UAE
- Interocean Group of Companies - India
- Bulk Trading Sa - Switzerland
- Xindia Steels Limited - India
- Electricity Authority, New Zealand
- Meralco Power Generation, Philippines
- Bukit Baiduri Energy - Indonesia
- Videocon Industries ltd - India
- Chettinad Cement Corporation Ltd - India
- GN Power Mariveles Coal Plant, Philippines
- Larsen & Toubro Limited - India
- Dalmia Cement Bharat India
- Riau Bara Harum - Indonesia
- Timah Investasi Mineral - Indoneisa
- Energy Development Corp, Philippines
- Coal and Oil Company - UAE
- ASAPP Information Group - India
- Price Waterhouse Coopers - Russia
- Georgia Ports Authority, United States
- OPG Power Generation Pvt Ltd - India
- Holcim Trading Pte Ltd - Singapore
- Kaltim Prima Coal - Indonesia
- Singapore Mercantile Exchange
- Attock Cement Pakistan Limited
- PowerSource Philippines DevCo
- Antam Resourcindo - Indonesia
- Planning Commission, India
- Energy Link Ltd, New Zealand
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- PTC India Limited - India
- Jaiprakash Power Ventures ltd
- Indika Energy - Indonesia
- Semirara Mining and Power Corporation, Philippines
- White Energy Company Limited
- PNOC Exploration Corporation - Philippines
- Kartika Selabumi Mining - Indonesia
- Edison Trading Spa - Italy
- Central Java Power - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Pendopo Energi Batubara - Indonesia
- Eastern Energy - Thailand
- Bayan Resources Tbk. - Indonesia
- New Zealand Coal & Carbon
- Alfred C Toepfer International GmbH - Germany
- Port Waratah Coal Services - Australia
- IEA Clean Coal Centre - UK
- Cement Manufacturers Association - India
- CNBM International Corporation - China
- Siam City Cement PLC, Thailand
- Jorong Barutama Greston.PT - Indonesia
- Samtan Co., Ltd - South Korea
- Altura Mining Limited, Indonesia
- The Treasury - Australian Government
- Vizag Seaport Private Limited - India
- CIMB Investment Bank - Malaysia
- Bukit Makmur.PT - Indonesia
- Latin American Coal - Colombia
- Heidelberg Cement - Germany
- Coastal Gujarat Power Limited - India
- Goldman Sachs - Singapore
- Billiton Holdings Pty Ltd - Australia
- Iligan Light & Power Inc, Philippines
- The University of Queensland
- GAC Shipping (India) Pvt Ltd
- Ministry of Transport, Egypt
- Indian Energy Exchange, India
- Wilmar Investment Holdings
- Parliament of New Zealand
- Formosa Plastics Group - Taiwan
- Karaikal Port Pvt Ltd - India
- Bhoruka Overseas - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Global Business Power Corporation, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- Deloitte Consulting - India
- Bahari Cakrawala Sebuku - Indonesia
- VISA Power Limited - India
- Indonesian Coal Mining Association
- India Bulls Power Limited - India
- Petron Corporation, Philippines
- Mercuria Energy - Indonesia
- IHS Mccloskey Coal Group - USA
- Aditya Birla Group - India
- Tata Chemicals Ltd - India
- Metalloyd Limited - United Kingdom
- Sindya Power Generating Company Private Ltd
- Kobexindo Tractors - Indoneisa
- Star Paper Mills Limited - India
- Ind-Barath Power Infra Limited - India
- Intertek Mineral Services - Indonesia
- Essar Steel Hazira Ltd - India
- MS Steel International - UAE
- Kapuas Tunggal Persada - Indonesia
- Parry Sugars Refinery, India
- The State Trading Corporation of India Ltd
- London Commodity Brokers - England
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Barasentosa Lestari - Indonesia
- Sarangani Energy Corporation, Philippines
- International Coal Ventures Pvt Ltd - India
- Salva Resources Pvt Ltd - India
- Carbofer General Trading SA - India
- Africa Commodities Group - South Africa
- Mjunction Services Limited - India
- Bhatia International Limited - India
- Thai Mozambique Logistica
- Bharathi Cement Corporation - India
- Straits Asia Resources Limited - Singapore
- Orica Australia Pty. Ltd.
- European Bulk Services B.V. - Netherlands
- Siam City Cement - Thailand
- Coalindo Energy - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Commonwealth Bank - Australia
- Gujarat Electricity Regulatory Commission - India
- Mintek Dendrill Indonesia
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