U.S. Coking Coal May Gain Share Against Australia, Dahlman Says

North American coking coal producers may pull demand away from Australia, the world’s top miner of the steelmaking fuel, as new taxes and labor costs make that country’s output less competitive.

U.S. and Canadian metallurgical coal is becoming more competitive since Australia implemented taxes on mining profits and carbon emissions on July 1, and as growth in energy sector wages outpaced those in North America, said Dahlman Rose & Co.

“In our view, the combination of these factors are tipping the scale in favor of Canada and the U.S. and providing the lowest cost North American producers with the opportunity to gain market share,” Daniel Scott, an analyst at Dahlman Rose in New York, said in a report today.

The benchmark price for metallurgical coal is down 50 percent to $165 a metric ton from the record $330 per metric ton set in the second quarter of 2011, data compiled by Bloomberg show. That price followed floods in Queensland, Australia, that curtailed production.

“Though Australia remains the standard in the global coking coal market and serves as the barometer for benchmark met coal settlements its position as the low-cost producer has eroded and the competitiveness of the industry is being reshuffled, due to its cost inflation relative to the U.S. and Canada,” Scott wrote.

Price Outlooks

The investment bank lowered its projection for the average 2013 metallurgical coal price to $180 a metric ton from an earlier forecast of $200 and predicted that prices will average $200 a metric ton in 2014.

Coking or metallurgical coal is used in steelmaking while the thermal variety is used by utilities to generate electricity.

Dahlman cut its Central Appalachia thermal coal outlook 9.7 percent to $65 a short ton from $72 and estimated that prices will average $70 in 2014.

Coal fell 24 cents, or 0.4 percent, to $57.93 a ton yesterday on the New York Mercantile Exchange, down 13 percent from a year earlier.

“We believe that elevated inventories and ample supply will continue to weigh on global thermal coal prices during 2013,” Scott wrote.

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