ENERGY

Coal prices to slide in 2009

Coal prices will slide by over 20% in 2009, according to a Reuters poll, as the credit crunch weakens demand.

Author: Fayen Wong
Posted: Thursday , 27 Nov 2008

PERTH (Reuters) - 

Prices of thermal and coking coal will fall 20 and 26 percent respectively in 2009, a Reuters poll showed on Thursday, thinning miners' profits as a slowing global economy chews into demand.

 Prices of Asian thermal coal, mainly used to generate power, may fall to $100 a tonne in the 2009 Japanese fiscal year, down 20 percent from this year's agreed price of $125, a median forecast of 10 analysts said.

 Prices of premium hard coking coal, used by steel makers, are forecast to slide 26 percent to $225 a tonne, after posting stellar gains of more than 200 percent to  $305 a tonne in 2008.

 But the broad range of estimates for coking coal, from $140 to $300 a tonne, shows how hard it is to gauge the impact of demand cuts by steel mills, which have reduced production as global financial woes bite.

 "The spike in both thermal and coking coal markets has largely been triggered by supply disruptions earlier this year," said Gerard Burg, a commodities analyst at the National Bank of Australia.

 "But weaker demand conditions and a possible increase in supplies will dampen prices in 2009."

 Thermal coal prices were generally seen as the most resilient but demand was still expected to be squeezed by recent collapses in the prices of of oil and gas, which are alternative fuels used in power generation.

 Amid a sharp falloff in domestic demand, a likely increase in Chinese thermal coal exports could also create additional slack in the international market.

 Greater port capacity in Australia -- the world's second-largest exporter of thermal coal -- as well as the diversion of semi-soft coking coal from the steel industry to power generation would also swell supplies and drag thermal coal prices lower, analysts said.

 Benchmark Australian spot thermal coal prices have tumbled more than 60 percent in just four months from their July peak of $201 a tonne, to hover at a 13-month low of about $77.

 Evidence is mounting that global economic weakness has dented fuel demand, with industrial users from Europe to Asia cutting production because of slowing exports.

 World No. 1 coal importer Japan slid into its first recession in seven years as exports crumbled, with some fearing an escalation of the global crisis may have put the economy on course for its longest recession.

 As a growing number of economies head into recession, traders and producers said the outlook for thermal coal consumption by industrial users, such as cement and chemical makers, was dim.

 For more on Australia spot coal prices, click on

 COKING COAL PRICES TO SLUMP

 As for coking coal, demand destruction remains the key downside factor, with a growing army of steelmakers, such as ArcelorMittal, Baosteel Group and Evraz, slashing output as prices, and demand, contract.

 "We envisage sharper price declines for weaker brands of coking coal, semi-soft and pulverized coal injection (PCI)," Goldman Sachs said in a Nov. 17 report.

 Goldman Sachs analyst Malcolm Southwood added that suppliers of lower quality PCI and semi-soft coal could become distress sellers into a weakening thermal coal market if steelmakers cancelled orders dramatically.

 Miners which produce coking and thermal coal include: Macarthur Coal Ltd, Felix Resources Ltd, Centennial Coal Ltd, Gloucester Coal Ltd and Whitehaven Coal. Global mining majors Xstrata, BHP Billiton Ltd/Plc and Rio Tinto Group/Plc also have operations in Australia.

 Still, it was unlikely Australian coal miners would end up having to sell coking coal at a loss, despite the expected slump, some analysts said.

 "We currently judge that prices will be set at levels which do not push producers into loss-making and deter future investment in new capacity, something the industry desperately needs," said Macquarie's Jim Lennon.

 2009 Asian coal price forecasts ($ per tonne)#:

                                   Thermal Coal    Hard Coking Coal

 ANZ Bank                     75.00 (100.00)     155.00 (231.00)

 Goldman Sachs JBWere  90.00 (100.00)     170.00 (260.00)

 UBS Bank                    100.00 (125.00)     180.00 (250.00)

 Citigroup                     100.00 (160.00)     250.00 (350.00)

 Deutsche Bank             100.00 (144.00)     275.00 (275.00)

 Credit Suisse               100.00 (160.00)     300.00*

 Macquarie Bank           105.00 (170.00)     140.00 (350.00)

 ABN AMRO                  105.00 (165.00)     200.00 (330.00)

 Nat'l Australia Bank      120.00*             285.00*

 Merrill Lynch*              130.00*             300.00*

 ---------------------------------------------------------

Median                       100.00              225.00

 High                         130.00              300.00

 Low                            75.00              140.00

 # Banks' previous forecasts are in parentheses.

 * Forecasts are being reviewed.

 (Reporting by Fayen Wong; Editing by Clarence Fernandez)

 

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