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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
CIL PRICE HIKE LIKELY TO PUSH POWER RATES UP
Business-Standard reported that, May squeeze cement companies’ margins, but the steel sector is unlikely to be affected much.
The upward re ...
Thursday, 22 October 09
2ND UNITED INDONESIA CABINET UNVEILED
The Jakarta Post reported that, President Susilo Bambang Yudhoyono announced his second United Indonesia Cabinet on Wednesday night, comprising 34 m ...
Thursday, 22 October 09
PEABODY SET TO TAP ASIAN DEMAND FOR COAL
The Australian reported that, US coal giant Peabody Energy plans to double its Queensland and NSW coal exports in the next five years, as it looks t ...
Wednesday, 21 October 09
INDONESIA POWER FIRM SEEKS TO DEFER COAL SUPPLIES
Reuters reported that, Indonesia's state power firm is negotiating with two coal producers, including a unit of PT Bumi Resources Tbk, to defer a c ...
Wednesday, 21 October 09
MINING REGULATION GENERATES CONFUSION IN INDONESIA
The Jakarta Globe reported that, Mining industry representatives said on Friday they were confused by a recently issued regulation restricting the w ...
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- Global Business Power Corporation, Philippines
- Kartika Selabumi Mining - Indonesia
- Power Finance Corporation Ltd., India
- Bhatia International Limited - India
- Ind-Barath Power Infra Limited - India
- Iligan Light & Power Inc, Philippines
- Jaiprakash Power Ventures ltd
- ICICI Bank Limited - India
- Alfred C Toepfer International GmbH - Germany
- Rashtriya Ispat Nigam Limited - India
- Altura Mining Limited, Indonesia
- Toyota Tsusho Corporation, Japan
- Mintek Dendrill Indonesia
- Indonesian Coal Mining Association
- PetroVietnam Power Coal Import and Supply Company
- Goldman Sachs - Singapore
- The Treasury - Australian Government
- Georgia Ports Authority, United States
- Singapore Mercantile Exchange
- Bhoruka Overseas - Indonesia
- Parliament of New Zealand
- Ministry of Transport, Egypt
- Energy Link Ltd, New Zealand
- The State Trading Corporation of India Ltd
- Australian Commodity Traders Exchange
- Pipit Mutiara Jaya. PT, Indonesia
- Chettinad Cement Corporation Ltd - India
- Agrawal Coal Company - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Kobexindo Tractors - Indoneisa
- Kumho Petrochemical, South Korea
- Minerals Council of Australia
- Directorate Of Revenue Intelligence - India
- Merrill Lynch Commodities Europe
- Mercuria Energy - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Interocean Group of Companies - India
- Global Coal Blending Company Limited - Australia
- Attock Cement Pakistan Limited
- Maheswari Brothers Coal Limited - India
- Ambuja Cements Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- Kepco SPC Power Corporation, Philippines
- Carbofer General Trading SA - India
- SN Aboitiz Power Inc, Philippines
- Kalimantan Lumbung Energi - Indonesia
- Economic Council, Georgia
- Ministry of Mines - Canada
- PNOC Exploration Corporation - Philippines
- Wood Mackenzie - Singapore
- Commonwealth Bank - Australia
- Banpu Public Company Limited - Thailand
- Siam City Cement - Thailand
- International Coal Ventures Pvt Ltd - India
- Timah Investasi Mineral - Indoneisa
- Kideco Jaya Agung - Indonesia
- PTC India Limited - India
- Australian Coal Association
- Manunggal Multi Energi - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Parry Sugars Refinery, India
- London Commodity Brokers - England
- Aboitiz Power Corporation - Philippines
- Price Waterhouse Coopers - Russia
- Vedanta Resources Plc - India
- Karbindo Abesyapradhi - Indoneisa
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Neyveli Lignite Corporation Ltd, - India
- Kaltim Prima Coal - Indonesia
- Vizag Seaport Private Limited - India
- Cigading International Bulk Terminal - Indonesia
- Oldendorff Carriers - Singapore
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- CIMB Investment Bank - Malaysia
- Baramulti Group, Indonesia
- GMR Energy Limited - India
- Aditya Birla Group - India
- Bhushan Steel Limited - India
- Meenaskhi Energy Private Limited - India
- Trasteel International SA, Italy
- Mjunction Services Limited - India
- LBH Netherlands Bv - Netherlands
- Globalindo Alam Lestari - Indonesia
- Simpson Spence & Young - Indonesia
- Xindia Steels Limited - India
- Central Java Power - Indonesia
- India Bulls Power Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Gujarat Sidhee Cement - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Metalloyd Limited - United Kingdom
- Port Waratah Coal Services - Australia
- SMG Consultants - Indonesia
- Africa Commodities Group - South Africa
- GVK Power & Infra Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Indika Energy - Indonesia
- SMC Global Power, Philippines
- Indo Tambangraya Megah - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Petron Corporation, Philippines
- Renaissance Capital - South Africa
- Grasim Industreis Ltd - India
- Straits Asia Resources Limited - Singapore
- Bukit Baiduri Energy - Indonesia
- Savvy Resources Ltd - HongKong
- Makarim & Taira - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Star Paper Mills Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Uttam Galva Steels Limited - India
- OPG Power Generation Pvt Ltd - India
- IEA Clean Coal Centre - UK
- Rio Tinto Coal - Australia
- Global Green Power PLC Corporation, Philippines
- Barasentosa Lestari - Indonesia
- IHS Mccloskey Coal Group - USA
- Binh Thuan Hamico - Vietnam
- CNBM International Corporation - China
- TeaM Sual Corporation - Philippines
- Meralco Power Generation, Philippines
- Wilmar Investment Holdings
- Semirara Mining and Power Corporation, Philippines
- AsiaOL BioFuels Corp., Philippines
- Holcim Trading Pte Ltd - Singapore
- GAC Shipping (India) Pvt Ltd
- Central Electricity Authority - India
- Sarangani Energy Corporation, Philippines
- Pendopo Energi Batubara - Indonesia
- Antam Resourcindo - Indonesia
- European Bulk Services B.V. - Netherlands
- Anglo American - United Kingdom
- Cement Manufacturers Association - India
- Sinarmas Energy and Mining - Indonesia
- Independent Power Producers Association of India
- Orica Australia Pty. Ltd.
- Semirara Mining Corp, Philippines
- South Luzon Thermal Energy Corporation
- Madhucon Powers Ltd - India
- Bharathi Cement Corporation - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Larsen & Toubro Limited - India
- Ceylon Electricity Board - Sri Lanka
- Electricity Generating Authority of Thailand
- Maharashtra Electricity Regulatory Commission - India
- Samtan Co., Ltd - South Korea
- Standard Chartered Bank - UAE
- Thiess Contractors Indonesia
- Intertek Mineral Services - Indonesia
- Coalindo Energy - Indonesia
- Chamber of Mines of South Africa
- Bukit Makmur.PT - Indonesia
- The University of Queensland
- Salva Resources Pvt Ltd - India
- Coal and Oil Company - UAE
- Medco Energi Mining Internasional
- Jorong Barutama Greston.PT - Indonesia
- New Zealand Coal & Carbon
- Eastern Energy - Thailand
- ASAPP Information Group - India
- Indogreen Group - Indonesia
- Posco Energy - South Korea
- Borneo Indobara - Indonesia
- Formosa Plastics Group - Taiwan
- Sindya Power Generating Company Private Ltd
- Latin American Coal - Colombia
- Sical Logistics Limited - India
- Planning Commission, India
- Krishnapatnam Port Company Ltd. - India
- VISA Power Limited - India
- Karaikal Port Pvt Ltd - India
- Sree Jayajothi Cements Limited - India
- Therma Luzon, Inc, Philippines
- Bangladesh Power Developement Board
- Tamil Nadu electricity Board
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Bukit Asam (Persero) Tbk - Indonesia
- Siam City Cement PLC, Thailand
- Gujarat Electricity Regulatory Commission - India
- Heidelberg Cement - Germany
- Mercator Lines Limited - India
- Leighton Contractors Pty Ltd - Australia
- Sakthi Sugars Limited - India
- Indian Oil Corporation Limited
- Dalmia Cement Bharat India
- Bahari Cakrawala Sebuku - Indonesia
- McConnell Dowell - Australia
- Vijayanagar Sugar Pvt Ltd - India
- Jindal Steel & Power Ltd - India
- Marubeni Corporation - India
- Edison Trading Spa - Italy
- Essar Steel Hazira Ltd - India
- Bulk Trading Sa - Switzerland
- Bayan Resources Tbk. - Indonesia
- Malabar Cements Ltd - India
- PowerSource Philippines DevCo
- Videocon Industries ltd - India
- Asmin Koalindo Tuhup - Indonesia
- Deloitte Consulting - India
- Indian Energy Exchange, India
- Energy Development Corp, Philippines
- Kapuas Tunggal Persada - Indonesia
- San Jose City I Power Corp, Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- Thai Mozambique Logistica
- Eastern Coal Council - USA
- Electricity Authority, New Zealand
- White Energy Company Limited
- MS Steel International - UAE
- Romanian Commodities Exchange
- Coastal Gujarat Power Limited - India
- Tata Chemicals Ltd - India
- Riau Bara Harum - Indonesia
- Lanco Infratech Ltd - India
- Orica Mining Services - Indonesia
- Sojitz Corporation - Japan
- Ministry of Finance - Indonesia
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