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Australian, South African Coal Jump to Record on Supply Curbs

Updated on
A load of coal is loaded onto a ship
A load of coal is loaded onto a ship berthed at the Port of Newcastle in Australia, Sept. 3, 2007. Photographer: Andy Shaw/Bloomberg News

Coal jumped to records at Australia's Newcastle port and South Africa's Richards Bay as snowstorms in China, power cuts in the southern African nation and floods in Queensland reduced output.

Power-plant coal prices at the New South Wales port climbed $23.09, or 25 percent, to $116.44 a metric ton in the week ended Feb. 1, according to the globalCOAL NEWC Index. Coal at Richards Bay rose $12.20, or 12 percent, to $111.30 a ton in the week ended Feb. 1, according to McCloskey Group Ltd. data.

China, the world's largest producer and consumer of coal, will halt exports until April after the worst snowstorms in 50 years disrupted output. Power shortages in South Africa forced Anglo American Plc to close mines last month. In Australia, the world's biggest coal exporter, BHP Billiton Mitsubishi Alliance is among four miners that said they may miss deliveries after heavier-than-usual rain flooded pits.

``It's all stemming back to China, where it looks as if they've got some real problems,'' said Graham Wailes, a coal analyst at AME Mineral Economics Pty in Sydney. ``South Africa is having its dramas; the pressure's on, it's a bit of a short-term squeeze.''

The rising prices helped drive up coal producers' shares. Centennial Coal Co., Australia's second-largest coal company by sales, gained 2.7 percent, while Sydney-based Gloucester Coal rose 2.5 percent. China Shenhua Energy Co., the world's second-largest coal company, climbed as much as 5.5 percent in Hong Kong. U.K. Coal Plc rose as much as 2.2 percent in London.

China Snows

In China, more than three weeks of snow in the centre and south of the country have brought transport networks to a standstill, killed at least 60 people and caused economic losses of at least 53.8 billion yuan ($7.5 billion). China, reliant on coal for 78 percent of its power, is restricting exports to boost domestic supplies.

GlobalCOAL's monthly index for Newcastle thermal coal prices rose $1.71, or 1.9 percent, to $90.87 a ton in January, the fourth successive monthly record. Newcastle is the world's biggest coal-export harbor.

The price increase comes as coal suppliers and buyers are set to begin negotiations on annual contract prices to take effect April 1.

UBS AG, Europe's biggest bank by assets, on Feb. 1 raised its forecasts for thermal coal contract prices for 2008 and 2009, citing the coal ``crisis'' in China and supply disruptions in Australia. Contract prices may rise to $100 a ton this year and to $125 in 2009, up from previous estimates of $90 and $110, the bank said.

JPMorgan, ANZ

JPMorgan on Jan. 29 said it raised its estimate for 2008 contract prices for power-station coal to $90 a ton, from $70. It boosted forecasts of 2008 contract prices for coal used in steelmaking to $140 a ton, from $120. Contract prices for thermal coal are presently $55.65 a ton for the year that started April 1, while coking coal contract prices are $98.38, JPMorgan said.

``Spot prices over the coming months will continue to rise, notwithstanding the direction of oil prices,'' Australia & New Zealand Banking Group Ltd. said in a Jan. 31 report.

In addition to BHP Billiton Mitsubishi Alliance, Ensham Resources Pty, Wesfarmers Ltd. and Macarthur Coal Ltd. have warned customers they may miss contracted deliveries after rains disrupted production in central Queensland. Melbourne-based BHP Billiton Ltd., the world's biggest mining company, said operations at its alliance with Mitsubishi Corp. may be affected for as long as six months.

`Unbelievably Tight'

The Queensland disruptions are mostly affecting the metallurgical coal market, which is now ``unbelievably tight,'' pushing spot prices up to $200 or $210 a ton, Wailes said.

In Europe, thermal coal for delivery to Amsterdam, Rotterdam or Antwerp with settlement in the third quarter advanced $1, or 0.8 percent, to $126.50 a ton as of 4:35 p.m. in London on Jan. 31, ICAP prices showed.

In previous thermal coal supply shortages in Asia, Indonesia has been able to increase exports to help compensate, Wailes said. It might not have the ability to do so again now that it's already supplying so much more than previously, he said.

``I just don't think the supply solution is readily available and that's probably why you've had these huge increases,'' Wailes said.

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