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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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Thursday, 15 October 09
GOVT TO CAP COAL EXPORTS AT 150 MILLION TONS A YEAR
The Jakarta Post reported that, The government plans to cap coal exports at around 150 million tons a year in a bid to guarantee supply for domestic ...
Thursday, 15 October 09
AUSTRALIAN MINING COMPANIES REPORTED FINDING 1.5 BILLION COAL MINE DEPOSIT IN MOZAMBIQUE
Paguntaka reported that, Mozambique is a country that has the potential mining areas are very rich. Many mining companies who want to invest in the ...
Wednesday, 14 October 09
INDONESIA POWER FIRM SIGNS LOAN AGREEMENTS FOR OVER $1 BLN
Reuters reported that, Indonesia's state electricity firm PT Perusahaan Listrik Negara (PLN) has raised more than $1 billion from a group of banks ...
Wednesday, 14 October 09
LARSEN & TOUBRO MAY ENTER POWER GENERATION BUSINESS IN INDIA
Bloomberg reported that, Larsen & Toubro Ltd., India’s biggest engineering company, said it is considering entering the power generation b ...
Wednesday, 14 October 09
INDONESIA MULLS TO LIMIT COAL EXPORT
China View reported that, The Indonesian government planned to limit coal export of up to 150 million tons per year due to the growing coal demand i ...
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- Economic Council, Georgia
- GAC Shipping (India) Pvt Ltd
- Baramulti Group, Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Karaikal Port Pvt Ltd - India
- Kepco SPC Power Corporation, Philippines
- Meralco Power Generation, Philippines
- Electricity Authority, New Zealand
- Billiton Holdings Pty Ltd - Australia
- Siam City Cement PLC, Thailand
- Alfred C Toepfer International GmbH - Germany
- Samtan Co., Ltd - South Korea
- Ministry of Finance - Indonesia
- New Zealand Coal & Carbon
- Gujarat Electricity Regulatory Commission - India
- Iligan Light & Power Inc, Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Power Finance Corporation Ltd., India
- TNB Fuel Sdn Bhd - Malaysia
- PTC India Limited - India
- Georgia Ports Authority, United States
- SMC Global Power, Philippines
- Energy Development Corp, Philippines
- Global Business Power Corporation, Philippines
- Kartika Selabumi Mining - Indonesia
- Bhushan Steel Limited - India
- Posco Energy - South Korea
- CNBM International Corporation - China
- Petrochimia International Co. Ltd.- Taiwan
- London Commodity Brokers - England
- Bhoruka Overseas - Indonesia
- Oldendorff Carriers - Singapore
- The State Trading Corporation of India Ltd
- Global Green Power PLC Corporation, Philippines
- European Bulk Services B.V. - Netherlands
- The Treasury - Australian Government
- Kideco Jaya Agung - Indonesia
- Ministry of Mines - Canada
- Trasteel International SA, Italy
- Bukit Asam (Persero) Tbk - Indonesia
- Lanco Infratech Ltd - India
- Madhucon Powers Ltd - India
- Bukit Baiduri Energy - Indonesia
- Latin American Coal - Colombia
- Standard Chartered Bank - UAE
- Karbindo Abesyapradhi - Indoneisa
- Cigading International Bulk Terminal - Indonesia
- Coastal Gujarat Power Limited - India
- Sical Logistics Limited - India
- Agrawal Coal Company - India
- South Luzon Thermal Energy Corporation
- IEA Clean Coal Centre - UK
- Toyota Tsusho Corporation, Japan
- Meenaskhi Energy Private Limited - India
- Global Coal Blending Company Limited - Australia
- Gujarat Sidhee Cement - India
- Mjunction Services Limited - India
- Barasentosa Lestari - Indonesia
- Simpson Spence & Young - Indonesia
- Maheswari Brothers Coal Limited - India
- Marubeni Corporation - India
- Bahari Cakrawala Sebuku - Indonesia
- Orica Mining Services - Indonesia
- Coalindo Energy - Indonesia
- GVK Power & Infra Limited - India
- Rashtriya Ispat Nigam Limited - India
- GMR Energy Limited - India
- Edison Trading Spa - Italy
- Price Waterhouse Coopers - Russia
- Thiess Contractors Indonesia
- Star Paper Mills Limited - India
- Uttam Galva Steels Limited - India
- Straits Asia Resources Limited - Singapore
- Deloitte Consulting - India
- Metalloyd Limited - United Kingdom
- Central Java Power - Indonesia
- Sree Jayajothi Cements Limited - India
- Leighton Contractors Pty Ltd - Australia
- Binh Thuan Hamico - Vietnam
- Asmin Koalindo Tuhup - Indonesia
- Anglo American - United Kingdom
- PowerSource Philippines DevCo
- Chettinad Cement Corporation Ltd - India
- Attock Cement Pakistan Limited
- SN Aboitiz Power Inc, Philippines
- Australian Coal Association
- Eastern Energy - Thailand
- Orica Australia Pty. Ltd.
- Riau Bara Harum - Indonesia
- Africa Commodities Group - South Africa
- International Coal Ventures Pvt Ltd - India
- Indian Energy Exchange, India
- Indo Tambangraya Megah - Indonesia
- Bulk Trading Sa - Switzerland
- Semirara Mining and Power Corporation, Philippines
- Borneo Indobara - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Bharathi Cement Corporation - India
- ICICI Bank Limited - India
- Romanian Commodities Exchange
- Independent Power Producers Association of India
- Bhatia International Limited - India
- Xindia Steels Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Planning Commission, India
- Essar Steel Hazira Ltd - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Directorate General of MIneral and Coal - Indonesia
- Makarim & Taira - Indonesia
- Minerals Council of Australia
- OPG Power Generation Pvt Ltd - India
- Commonwealth Bank - Australia
- Electricity Generating Authority of Thailand
- Goldman Sachs - Singapore
- Holcim Trading Pte Ltd - Singapore
- PNOC Exploration Corporation - Philippines
- Heidelberg Cement - Germany
- Mercuria Energy - Indonesia
- India Bulls Power Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Ceylon Electricity Board - Sri Lanka
- Kapuas Tunggal Persada - Indonesia
- Singapore Mercantile Exchange
- Port Waratah Coal Services - Australia
- Eastern Coal Council - USA
- Pendopo Energi Batubara - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Parry Sugars Refinery, India
- Ind-Barath Power Infra Limited - India
- Wood Mackenzie - Singapore
- Larsen & Toubro Limited - India
- Timah Investasi Mineral - Indoneisa
- Jindal Steel & Power Ltd - India
- Petron Corporation, Philippines
- Savvy Resources Ltd - HongKong
- Salva Resources Pvt Ltd - India
- LBH Netherlands Bv - Netherlands
- Aditya Birla Group - India
- Kaltim Prima Coal - Indonesia
- Coal and Oil Company - UAE
- VISA Power Limited - India
- Bangladesh Power Developement Board
- Mercator Lines Limited - India
- Neyveli Lignite Corporation Ltd, - India
- The University of Queensland
- ASAPP Information Group - India
- Wilmar Investment Holdings
- White Energy Company Limited
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Carbofer General Trading SA - India
- TeaM Sual Corporation - Philippines
- Chamber of Mines of South Africa
- Indogreen Group - Indonesia
- SMG Consultants - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Parliament of New Zealand
- Kumho Petrochemical, South Korea
- Tata Chemicals Ltd - India
- Sindya Power Generating Company Private Ltd
- Pipit Mutiara Jaya. PT, Indonesia
- Maharashtra Electricity Regulatory Commission - India
- MS Steel International - UAE
- Semirara Mining Corp, Philippines
- Interocean Group of Companies - India
- Central Electricity Authority - India
- CIMB Investment Bank - Malaysia
- Gujarat Mineral Development Corp Ltd - India
- Tamil Nadu electricity Board
- Sinarmas Energy and Mining - Indonesia
- Intertek Mineral Services - Indonesia
- Vedanta Resources Plc - India
- Indonesian Coal Mining Association
- Renaissance Capital - South Africa
- Dalmia Cement Bharat India
- Antam Resourcindo - Indonesia
- Indian Oil Corporation Limited
- Videocon Industries ltd - India
- Energy Link Ltd, New Zealand
- Jorong Barutama Greston.PT - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Directorate Of Revenue Intelligence - India
- Globalindo Alam Lestari - Indonesia
- Rio Tinto Coal - Australia
- Indika Energy - Indonesia
- Miang Besar Coal Terminal - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Banpu Public Company Limited - Thailand
- Thai Mozambique Logistica
- Kobexindo Tractors - Indoneisa
- Therma Luzon, Inc, Philippines
- Sakthi Sugars Limited - India
- Malabar Cements Ltd - India
- IHS Mccloskey Coal Group - USA
- Sojitz Corporation - Japan
- San Jose City I Power Corp, Philippines
- Bayan Resources Tbk. - Indonesia
- Formosa Plastics Group - Taiwan
- Grasim Industreis Ltd - India
- Krishnapatnam Port Company Ltd. - India
- Altura Mining Limited, Indonesia
- Merrill Lynch Commodities Europe
- Bukit Makmur.PT - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Australian Commodity Traders Exchange
- McConnell Dowell - Australia
- Ambuja Cements Ltd - India
- Sarangani Energy Corporation, Philippines
- AsiaOL BioFuels Corp., Philippines
- Jaiprakash Power Ventures ltd
- Mintek Dendrill Indonesia
- Medco Energi Mining Internasional
- Cement Manufacturers Association - India
- Vizag Seaport Private Limited - India
- Aboitiz Power Corporation - Philippines
- Ministry of Transport, Egypt
- Siam City Cement - Thailand
- Manunggal Multi Energi - Indonesia
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