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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, 21 October 09
LAW ACCOMMODATES NATIONAL AND INVESTOR INTERESTS
COALspot.com (Indonesia): According to ESDM, the government has issued five Lawson the energy and mineral resources sector. These laws will prioriti ...
Wednesday, 21 October 09
INDONESIA'S BUKIT ASAM GETS COAL RAILWAY APPROVAL
Reuters reported that, Indonesian state coal miner PT Tambang Batubara Bukit Asam Tbk said on Wednesday it had been given government approval to sta ...
Wednesday, 21 October 09
COAL DEMAND SOARS AS ASIA ECONOMIES REBOUND - PEABODY
Reuters reported that, Demand for coal to generate electricity and make steel in China and India is expected to grow by 7 percent to 8 percent annua ...
Wednesday, 21 October 09
INDONESIAN SHOCK FOR INDIAN POWER PLANTS
Business-Standard reported that, India’s ambitious plans to generate an additional 180,000 Mw of power in the next seven years will face hurdl ...
Wednesday, 21 October 09
DUTA GRAHA PLANNING TO DELVE INTO MINING SECTOR
The Jakarta Globe reported that, PT Duta Graha, one of the country’s largest private engineering firms, says it intends to diversify into the ...
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- Eastern Energy - Thailand
- Indika Energy - Indonesia
- Petron Corporation, Philippines
- Pendopo Energi Batubara - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Directorate Of Revenue Intelligence - India
- Carbofer General Trading SA - India
- Coalindo Energy - Indonesia
- Meralco Power Generation, Philippines
- Timah Investasi Mineral - Indoneisa
- Directorate General of MIneral and Coal - Indonesia
- Metalloyd Limited - United Kingdom
- GVK Power & Infra Limited - India
- Australian Coal Association
- Kideco Jaya Agung - Indonesia
- Tata Chemicals Ltd - India
- Anglo American - United Kingdom
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Antam Resourcindo - Indonesia
- Altura Mining Limited, Indonesia
- Iligan Light & Power Inc, Philippines
- Tamil Nadu electricity Board
- Salva Resources Pvt Ltd - India
- Xindia Steels Limited - India
- Ministry of Finance - Indonesia
- Indian Energy Exchange, India
- Jaiprakash Power Ventures ltd
- Heidelberg Cement - Germany
- Bahari Cakrawala Sebuku - Indonesia
- Binh Thuan Hamico - Vietnam
- Therma Luzon, Inc, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Makarim & Taira - Indonesia
- TeaM Sual Corporation - Philippines
- Sree Jayajothi Cements Limited - India
- Central Java Power - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Aditya Birla Group - India
- Gujarat Electricity Regulatory Commission - India
- LBH Netherlands Bv - Netherlands
- Minerals Council of Australia
- Coastal Gujarat Power Limited - India
- Rashtriya Ispat Nigam Limited - India
- Price Waterhouse Coopers - Russia
- Merrill Lynch Commodities Europe
- Bhushan Steel Limited - India
- Parry Sugars Refinery, India
- Aboitiz Power Corporation - Philippines
- Australian Commodity Traders Exchange
- Toyota Tsusho Corporation, Japan
- Medco Energi Mining Internasional
- Mjunction Services Limited - India
- Mintek Dendrill Indonesia
- Interocean Group of Companies - India
- CIMB Investment Bank - Malaysia
- Bharathi Cement Corporation - India
- Karaikal Port Pvt Ltd - India
- Ministry of Transport, Egypt
- Singapore Mercantile Exchange
- South Luzon Thermal Energy Corporation
- VISA Power Limited - India
- McConnell Dowell - Australia
- Orica Mining Services - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Power Finance Corporation Ltd., India
- Energy Link Ltd, New Zealand
- White Energy Company Limited
- Holcim Trading Pte Ltd - Singapore
- Sinarmas Energy and Mining - Indonesia
- Larsen & Toubro Limited - India
- Manunggal Multi Energi - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Jindal Steel & Power Ltd - India
- IHS Mccloskey Coal Group - USA
- Posco Energy - South Korea
- Maharashtra Electricity Regulatory Commission - India
- PetroVietnam Power Coal Import and Supply Company
- Latin American Coal - Colombia
- Savvy Resources Ltd - HongKong
- SMC Global Power, Philippines
- IEA Clean Coal Centre - UK
- Vijayanagar Sugar Pvt Ltd - India
- Mercuria Energy - Indonesia
- Standard Chartered Bank - UAE
- Sakthi Sugars Limited - India
- Neyveli Lignite Corporation Ltd, - India
- Grasim Industreis Ltd - India
- Gujarat Sidhee Cement - India
- Ministry of Mines - Canada
- SMG Consultants - Indonesia
- Lanco Infratech Ltd - India
- Uttam Galva Steels Limited - India
- Siam City Cement PLC, Thailand
- ASAPP Information Group - India
- Commonwealth Bank - Australia
- Siam City Cement - Thailand
- Pipit Mutiara Jaya. PT, Indonesia
- Wilmar Investment Holdings
- Bank of Tokyo Mitsubishi UFJ Ltd
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Ambuja Cements Ltd - India
- Kaltim Prima Coal - Indonesia
- Indonesian Coal Mining Association
- Thiess Contractors Indonesia
- Bhatia International Limited - India
- Thai Mozambique Logistica
- Africa Commodities Group - South Africa
- Economic Council, Georgia
- Baramulti Group, Indonesia
- Electricity Authority, New Zealand
- PTC India Limited - India
- Edison Trading Spa - Italy
- Coal and Oil Company - UAE
- Videocon Industries ltd - India
- MS Steel International - UAE
- Rio Tinto Coal - Australia
- OPG Power Generation Pvt Ltd - India
- ICICI Bank Limited - India
- Krishnapatnam Port Company Ltd. - India
- Barasentosa Lestari - Indonesia
- Ind-Barath Power Infra Limited - India
- PNOC Exploration Corporation - Philippines
- Samtan Co., Ltd - South Korea
- Bulk Trading Sa - Switzerland
- Orica Australia Pty. Ltd.
- Chettinad Cement Corporation Ltd - India
- Bangladesh Power Developement Board
- Kobexindo Tractors - Indoneisa
- Indian Oil Corporation Limited
- GAC Shipping (India) Pvt Ltd
- Chamber of Mines of South Africa
- Trasteel International SA, Italy
- San Jose City I Power Corp, Philippines
- Renaissance Capital - South Africa
- Mercator Lines Limited - India
- SN Aboitiz Power Inc, Philippines
- Maheswari Brothers Coal Limited - India
- Kumho Petrochemical, South Korea
- Attock Cement Pakistan Limited
- Alfred C Toepfer International GmbH - Germany
- Romanian Commodities Exchange
- Miang Besar Coal Terminal - Indonesia
- Bukit Makmur.PT - Indonesia
- Georgia Ports Authority, United States
- European Bulk Services B.V. - Netherlands
- Goldman Sachs - Singapore
- Intertek Mineral Services - Indonesia
- International Coal Ventures Pvt Ltd - India
- The Treasury - Australian Government
- Cement Manufacturers Association - India
- The University of Queensland
- PowerSource Philippines DevCo
- Vizag Seaport Private Limited - India
- Bayan Resources Tbk. - Indonesia
- Formosa Plastics Group - Taiwan
- Madhucon Powers Ltd - India
- Bhoruka Overseas - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Electricity Generating Authority of Thailand
- Kapuas Tunggal Persada - Indonesia
- Sojitz Corporation - Japan
- Straits Asia Resources Limited - Singapore
- Globalindo Alam Lestari - Indonesia
- Sarangani Energy Corporation, Philippines
- Sindya Power Generating Company Private Ltd
- Semirara Mining and Power Corporation, Philippines
- Vedanta Resources Plc - India
- Port Waratah Coal Services - Australia
- GMR Energy Limited - India
- India Bulls Power Limited - India
- Kepco SPC Power Corporation, Philippines
- Billiton Holdings Pty Ltd - Australia
- Indo Tambangraya Megah - Indonesia
- The State Trading Corporation of India Ltd
- Cigading International Bulk Terminal - Indonesia
- Simpson Spence & Young - Indonesia
- Malabar Cements Ltd - India
- Dalmia Cement Bharat India
- Star Paper Mills Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Indogreen Group - Indonesia
- Essar Steel Hazira Ltd - India
- Global Coal Blending Company Limited - Australia
- Ceylon Electricity Board - Sri Lanka
- Sical Logistics Limited - India
- London Commodity Brokers - England
- Eastern Coal Council - USA
- Leighton Contractors Pty Ltd - Australia
- Riau Bara Harum - Indonesia
- Kartika Selabumi Mining - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Energy Development Corp, Philippines
- Global Green Power PLC Corporation, Philippines
- Borneo Indobara - Indonesia
- Semirara Mining Corp, Philippines
- Independent Power Producers Association of India
- Bukit Baiduri Energy - Indonesia
- Wood Mackenzie - Singapore
- Karbindo Abesyapradhi - Indoneisa
- New Zealand Coal & Carbon
- Offshore Bulk Terminal Pte Ltd, Singapore
- CNBM International Corporation - China
- Parliament of New Zealand
- Central Electricity Authority - India
- AsiaOL BioFuels Corp., Philippines
- Deloitte Consulting - India
- Meenaskhi Energy Private Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Planning Commission, India
- Global Business Power Corporation, Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- Banpu Public Company Limited - Thailand
- Agrawal Coal Company - India
- Petrochimia International Co. Ltd.- Taiwan
- Oldendorff Carriers - Singapore
- Marubeni Corporation - India
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