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You are here: Home Mining News News 2009 Jan-Feb Features Coal price outlook analysis for early 2009

Coal price outlook analysis for early 2009

by The Australian Journal of Mining created Mar 18, 2009 01:49 PM

Dr Don Barnett* discusses the price outlook for metallurgical and thermal coal.

  
Coal price outlook analysis for early 2009

Global coal demand in 2009 will be impacted by cutbacks in steel production and to a lesser extent by a slowdown in global electricity generation growth. The compounding impact of lower volumes and price will impact on the profitability of Australia’s export coal industry.
The price outlook forecasts of six analyst groups for hard coking coal (the premium coal type) and export quality thermal coal, the lowest export quality category, have been graphed in the two figures. The analyst companies are ANZ Commodities, Citigroup, Goldman Sachs JBWere, Macquarie Research, Merrill Lynch, Wilson HTM and MINEC Pty Ltd.

Metallurgical Coal
The world financial crisis led to a reduction in steel demand in the last quarter of 2008 which resulted in cutbacks in steel production and depressed market for metallurgical coal.
Prior to the onset of the financial crisis it was generally expected metallurgical coal prices would remain very high throughout 2009 and 2010 before slowly decreasing to long-term levels generally 20 to 40 per cent higher than the pre “China Boom” levels in 2007.
By year end 2008 the near term forecasts for premium hard coking coal had basically halved to between US$125 to $200 per tonne FOB export port, but the long term expectations have increased slightly over the pre financial crisis levels to between US$120 to $150 (Figure 1).
The 2009 price of semi soft coking coal, the lowest coking coal category and the highest quality thermal coal, is now expected to be slightly less than half the 2008 price of US$240, and then to drift down to between US$90 to $100 out to at least 2015.

Thermal Coal
Despite concerns with global warming, much of Asia is turning to coal and has massive plans to invest in coal-fired power stations. Peabody states that, “globally, 200 gigawatts of coal plants are currently under construction, representing 700 million tonnes of annual coal demand expected to come on line in the next several years.”
Demand for thermal coal in 2009 will be driven by industrialisation and urbanisation in China and India which will account for half of the new coal plants.
Commonwealth Securities expects, “thermal demand to hold up better than coking coal demand. The majority of Australia’s thermal coal exports are some of the highest quality available in the seaborne market, with high energy content, low sulphur, moisture and impurities. These qualities will shield demand somewhat as certain power stations require high quality inputs for effective operation.”
Thermal or steam coal is expected to fall from the 2008 level of US$125 per tonne FOB to between US$75 and $105 in 2009 and by 2015 to be between US$70 and $80 per tonne, approximately 50 per cent above the 2007 level (Figure 2).
Citigroup, however, forecast a price of US$70 for 2012 and a long-term price for thermal coal of US$50. With the cost increases that have occurred basically world wide in thermal coal production costs since the early part of this decade, it is not clear that at such a low price sufficient export coal could be produced to satisfy the expected consumption level.
Clearly coal companies fear a cost price squeeze in 2009 and are reviewing their cost structures to manage the compounding impact of lower volume and price.

* Don Barnett is managing director of MINEC Pty Ltd and is a recognised analyst in the Australian coal industry. Dr Barnett has been monitoring coal cash cost movements for Australian coal companies from 1995 to 2008 and his findings will be published in future editions of The Australian Journal of Mining. Contribution to this article was also made by Bede Boyle, founder of the AustCoal Consulting Alliance.

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