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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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Friday, 23 October 09
INDIAN GROUP INTERESTED IN MOZAMBICAN COAL
Mining Weekly reported that, India’s leading steelmaker, the Steel Authority of India Limited (Sail), has confirmed that it is seeking to acqu ...
Friday, 23 October 09
AUSTRALIA APPROVES CHINESE TAKEOVER OF FELIX RESOURCES
* Australia give conditional approval to China's Felix deal
* Chinese owner must list the assets on Australian exchange
Reuters reported that, ...
Friday, 23 October 09
IVANHOE TARGETING 20 MILLION TONS OF COAL OUTPUT IN MONGOLIA
Bloomberg reported that, Ivanhoe Mines Ltd., developing a $4 billion copper and gold mine in Mongolia with Rio Tinto Group, is targeting long-term c ...
Friday, 23 October 09
XSTRATA PLANS $1BN AUSTRALIAN COAL PORT
Xstrata Plc, the world's biggest exporter of steam coal, plans to build a new $1 billion coal port in Australia, it said.
The proposed Balaclava ...
Friday, 23 October 09
MEXICO'S CFE SEEKS 6.24 MLN T COAL FOR 2010-12
Reuters reported that, Mexico's state-owned power monopoly plans to award a tender for 6.24 million tonnes of steam coal in December, according to ...
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- Energy Development Corp, Philippines
- Eastern Coal Council - USA
- Marubeni Corporation - India
- Bharathi Cement Corporation - India
- Pendopo Energi Batubara - Indonesia
- PTC India Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Romanian Commodities Exchange
- European Bulk Services B.V. - Netherlands
- Semirara Mining and Power Corporation, Philippines
- Indika Energy - Indonesia
- Orica Mining Services - Indonesia
- Baramulti Group, Indonesia
- Electricity Authority, New Zealand
- Kobexindo Tractors - Indoneisa
- VISA Power Limited - India
- Bhatia International Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Agrawal Coal Company - India
- India Bulls Power Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Binh Thuan Hamico - Vietnam
- SMC Global Power, Philippines
- Star Paper Mills Limited - India
- Holcim Trading Pte Ltd - Singapore
- Intertek Mineral Services - Indonesia
- Mjunction Services Limited - India
- Indian Oil Corporation Limited
- Makarim & Taira - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Economic Council, Georgia
- Edison Trading Spa - Italy
- Attock Cement Pakistan Limited
- Metalloyd Limited - United Kingdom
- The Treasury - Australian Government
- Straits Asia Resources Limited - Singapore
- Borneo Indobara - Indonesia
- Parliament of New Zealand
- Kalimantan Lumbung Energi - Indonesia
- Rio Tinto Coal - Australia
- Ambuja Cements Ltd - India
- Port Waratah Coal Services - Australia
- Australian Coal Association
- Aboitiz Power Corporation - Philippines
- Tata Chemicals Ltd - India
- Kideco Jaya Agung - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Thai Mozambique Logistica
- Central Electricity Authority - India
- GVK Power & Infra Limited - India
- Indogreen Group - Indonesia
- International Coal Ventures Pvt Ltd - India
- Madhucon Powers Ltd - India
- The University of Queensland
- Grasim Industreis Ltd - India
- Petron Corporation, Philippines
- Riau Bara Harum - Indonesia
- Semirara Mining Corp, Philippines
- Anglo American - United Kingdom
- Posco Energy - South Korea
- Jaiprakash Power Ventures ltd
- Maharashtra Electricity Regulatory Commission - India
- Gujarat Mineral Development Corp Ltd - India
- Wilmar Investment Holdings
- Latin American Coal - Colombia
- Indonesian Coal Mining Association
- Bank of Tokyo Mitsubishi UFJ Ltd
- Aditya Birla Group - India
- Bukit Baiduri Energy - Indonesia
- Parry Sugars Refinery, India
- Electricity Generating Authority of Thailand
- Altura Mining Limited, Indonesia
- Bulk Trading Sa - Switzerland
- Cigading International Bulk Terminal - Indonesia
- Singapore Mercantile Exchange
- TeaM Sual Corporation - Philippines
- Antam Resourcindo - Indonesia
- Planning Commission, India
- Price Waterhouse Coopers - Russia
- Timah Investasi Mineral - Indoneisa
- Videocon Industries ltd - India
- Thiess Contractors Indonesia
- Meralco Power Generation, Philippines
- Maheswari Brothers Coal Limited - India
- London Commodity Brokers - England
- MS Steel International - UAE
- Meenaskhi Energy Private Limited - India
- Ministry of Transport, Egypt
- Petrochimia International Co. Ltd.- Taiwan
- Mercator Lines Limited - India
- Medco Energi Mining Internasional
- PetroVietnam Power Coal Import and Supply Company
- Karaikal Port Pvt Ltd - India
- Xindia Steels Limited - India
- Global Coal Blending Company Limited - Australia
- Central Java Power - Indonesia
- Jindal Steel & Power Ltd - India
- GMR Energy Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Vizag Seaport Private Limited - India
- Global Green Power PLC Corporation, Philippines
- Indo Tambangraya Megah - Indonesia
- Bhoruka Overseas - Indonesia
- ICICI Bank Limited - India
- Neyveli Lignite Corporation Ltd, - India
- New Zealand Coal & Carbon
- Eastern Energy - Thailand
- The State Trading Corporation of India Ltd
- Simpson Spence & Young - Indonesia
- Savvy Resources Ltd - HongKong
- Orica Australia Pty. Ltd.
- Gujarat Electricity Regulatory Commission - India
- Formosa Plastics Group - Taiwan
- PowerSource Philippines DevCo
- Barasentosa Lestari - Indonesia
- Larsen & Toubro Limited - India
- Interocean Group of Companies - India
- Sarangani Energy Corporation, Philippines
- Independent Power Producers Association of India
- Energy Link Ltd, New Zealand
- Kepco SPC Power Corporation, Philippines
- Ceylon Electricity Board - Sri Lanka
- Australian Commodity Traders Exchange
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Vedanta Resources Plc - India
- Ind-Barath Power Infra Limited - India
- Coalindo Energy - Indonesia
- Dalmia Cement Bharat India
- Gujarat Sidhee Cement - India
- Siam City Cement PLC, Thailand
- Wood Mackenzie - Singapore
- Miang Besar Coal Terminal - Indonesia
- Coastal Gujarat Power Limited - India
- Merrill Lynch Commodities Europe
- ASAPP Information Group - India
- Chettinad Cement Corporation Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Bayan Resources Tbk. - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Mintek Dendrill Indonesia
- Bukit Makmur.PT - Indonesia
- Kartika Selabumi Mining - Indonesia
- Sakthi Sugars Limited - India
- Carbofer General Trading SA - India
- Commonwealth Bank - Australia
- Vijayanagar Sugar Pvt Ltd - India
- Indian Energy Exchange, India
- Heidelberg Cement - Germany
- Kohat Cement Company Ltd. - Pakistan
- Therma Luzon, Inc, Philippines
- LBH Netherlands Bv - Netherlands
- Malabar Cements Ltd - India
- Kaltim Prima Coal - Indonesia
- Sojitz Corporation - Japan
- Leighton Contractors Pty Ltd - Australia
- Tamil Nadu electricity Board
- TNB Fuel Sdn Bhd - Malaysia
- Kapuas Tunggal Persada - Indonesia
- Sree Jayajothi Cements Limited - India
- Alfred C Toepfer International GmbH - Germany
- Georgia Ports Authority, United States
- Deloitte Consulting - India
- Bukit Asam (Persero) Tbk - Indonesia
- South Luzon Thermal Energy Corporation
- IEA Clean Coal Centre - UK
- Sinarmas Energy and Mining - Indonesia
- SN Aboitiz Power Inc, Philippines
- Krishnapatnam Port Company Ltd. - India
- Manunggal Multi Energi - Indonesia
- McConnell Dowell - Australia
- Coal and Oil Company - UAE
- Oldendorff Carriers - Singapore
- CIMB Investment Bank - Malaysia
- OPG Power Generation Pvt Ltd - India
- Mercuria Energy - Indonesia
- Global Business Power Corporation, Philippines
- Uttam Galva Steels Limited - India
- Globalindo Alam Lestari - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Chamber of Mines of South Africa
- Africa Commodities Group - South Africa
- GAC Shipping (India) Pvt Ltd
- AsiaOL BioFuels Corp., Philippines
- Rashtriya Ispat Nigam Limited - India
- SMG Consultants - Indonesia
- Standard Chartered Bank - UAE
- Sical Logistics Limited - India
- CNBM International Corporation - China
- Cement Manufacturers Association - India
- IHS Mccloskey Coal Group - USA
- Toyota Tsusho Corporation, Japan
- Bhushan Steel Limited - India
- San Jose City I Power Corp, Philippines
- White Energy Company Limited
- Ministry of Finance - Indonesia
- PNOC Exploration Corporation - Philippines
- Siam City Cement - Thailand
- Essar Steel Hazira Ltd - India
- Trasteel International SA, Italy
- Salva Resources Pvt Ltd - India
- Iligan Light & Power Inc, Philippines
- Samtan Co., Ltd - South Korea
- Kumho Petrochemical, South Korea
- Billiton Holdings Pty Ltd - Australia
- Directorate Of Revenue Intelligence - India
- Ministry of Mines - Canada
- Lanco Infratech Ltd - India
- Karbindo Abesyapradhi - Indoneisa
- Sindya Power Generating Company Private Ltd
- Goldman Sachs - Singapore
- Power Finance Corporation Ltd., India
- Banpu Public Company Limited - Thailand
- Bangladesh Power Developement Board
- Minerals Council of Australia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Directorate General of MIneral and Coal - Indonesia
- Renaissance Capital - South Africa
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