The Hindu Business Line : Firm trend in coal prices seen continuing in long term

Mumbai, May 8 The coal market, which has seen some incredible price performance in recent months, is unlikely to peak anytime soon going by market dynamics. Indeed, the current price fire is expected to rage for some years. Spot and contract market prices have spurted in the wake of stronger than expected demand in 2007 coupled with significant production losses in many coal producing areas, particularly, Australia.

While coking coal looks as though it would remain tight enough for producers to achieve at least a rollover (flat prices), at today’s incredibly high prices for another year in 2009, for thermal coal prices should move even higher as supplies get tighter following producers switching from producing thermal coal to semi-soft and soft coking coals, according to Macquarie Research Commodities.

Indeed, demand from China and India is seen as a key factor that can create a strong upside potential for prices. Faltering supply growth can add further upward thrust.

Price rise

The coal market witnessed some amazing price increases. In a year’s time, hard coking coal prices zoomed from $85-98 a tonne free-on-board to the $285-300 a tonne range for Australian and Canadian suppliers.

Price rises bigger than 250 per cent have been achieved in semi-soft, semi-hard and low volatile PCI coals. According to Macquarie, important in driving prices higher has been strong Indian and Japanese demand for thermal coal, coupled with the move of China from a significant net exporter to a balanced state in 2007.

Large surge

In coking coals, there was an unexpectedly large surge in Eastern European demand for hard coking coal following serious mine accidents in Russia and Ukraine. Large additions to steelmaking capacity in India and Brazil in the coming years could also significantly boost demand and keep the coking coal market tight, experts assert.

For major coal types, Macquarie has revised its price forecast up sharply. For hard coking coal, the revised price forecast for 2008 and 2009 is $ 300 a tonne, while forecast for semi-soft coking coal is $ 220 a tonne. From $125 a tonne in 2008, thermal coal prices are forecast to rise to $ 140 a tonne next year.

The revised price forecasts also take into account exchange rate pressures on the industry and the new reality that pricing is related to other energy forms such as oil.

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