Coal price seen rising 3 fold, to hit record - Merrill

SYDNEY Fri Mar 7, 2008 12:58pm IST

A labourer works at a wholesale coal shop in Siliguri February 27, 2008. Merrill Lynch has raised its forecasts for contract prices of coal for power plants and steel mills in 2008, predicting that prices will jump by as much as 200 percent, after recent supply disruptions resulted in a severe global shortage. REUTERS/Rupak De Chowdhuri

A labourer works at a wholesale coal shop in Siliguri February 27, 2008. Merrill Lynch has raised its forecasts for contract prices of coal for power plants and steel mills in 2008, predicting that prices will jump by as much as 200 percent, after recent supply disruptions resulted in a severe global shortage.

Credit: Reuters/Rupak De Chowdhuri

Related Topics

SYDNEY (Reuters) - Merrill Lynch has raised its forecasts for contract prices of coal for power plants and steel mills in 2008, predicting that prices will jump by as much as 200 percent, after recent supply disruptions resulted in a severe global shortage.

Contract prices for coking coal, used to make steel, are expected to reach a record high of $300 a tonne, a three-fold rise from an agreed price of $98 last year, amid a "supply apocalypse" following recent weather-related supply disruptions in Australia, Merrill Lynch said in a research note on Friday.

Japanese utilities, such as Chubu Electric Power Co, may need to pay miners in Australia $135 a tonne for coal contracts in fiscal 2008 beginning April, up 143 percent from last year's agreed $55.65, Merrill Lynch said.

Merrill Lynch had previously forecast 2008 thermal coal prices at $80 tonne.

"There is now an obvious scramble for supply with industry sources confirming that Asian steel mills are begging for tonnes at close to any cost," Merrill Lynch said in a report led by Vicky Binns.

"Under current market conditions, spot prices reflect the 'hysteria' of the supply shortage and therefore spot appears a reasonable guide for contract settlement."

Merrill Lynch estimated that recent flooding in Australia's Queensland state to have removed about 15 million tonnes of coking coal from the export market.

As for thermal coal, Merrill Lynch said recent supply disruptions from Australia, China and South Africa, combined with powerful Asian demand, would result in supply deficit of a 60 million tonnes for thermal coal this year.

"Thermal coal's already very tight seaborne trade has been devastated by two, simultaneous supply-side shocks in the last 4-8 weeks: widespread destructive winter storms in China prompting a ban on exports and South Africa's power shortages," Merrill Lynch said.

The thermal coal market is expected to be under-supplied for the next three years as key export countries struggle to expand their port facilities, Merrill Lynch said.

Brokerage Goldman Sachs JB Were said in a client note on Wednesday that prices for coking coal and thermal coal were expected to reach $200 a tonne and $130 a tonne, respectively.

Australia is the world's largest exporter of coking coal.

Extreme weather in coal-rich Queensland state in the past two months have prompted six producers, including BHP Billiton Ltd, Rio Tinto Ltd and Xstrata Plc to declare force majeure on shipments.

Updated forecasts for '08 Asia coal contract price

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

BANK THERMAL METALLURGICAL

Merrill Lynch $135 $300

UBS $130 $225

Goldman Sachs JB Were $130 $200

Macquarie $125 $225

Citigroup $100 $200

JP Morgan $90 $140

National Australia Bank $78 $130

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared

India-Nepal Ties

REUTERS SHOWCASE

Tackling Food Prices

Tackling Food Prices

India to free up extra 10 million tonne wheat in open market  Full Article 

Facebook Results

Facebook Results

Facebook beats Wall Street targets, stock hits record high  Full Article 

GM Recall

GM Recall

GM recalls 717,950 vehicles in U.S., not for ignition switches  Full Article 

Hyundai Motor Results

Hyundai Motor Results

Hyundai Motor Q2 profit slips as firmer won, U.S. discounts hurt  Full Article 

Nokia Results

Nokia Results

Nokia raises networks outlook after Q2 profit beats estimates  Full Article 

Factory Sector

Factory Sector

China July HSBC flash PMI at 18-month high of 52.0   Full Article 

Breakingviews

Breakingviews

Apple winds up earnings hope for new gadgets  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device.  Full Coverage