Coking coal prices set to go up
BS Reporter / Kolkata December 14, 2010, 0:00 IST
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Coking coal prices are set to go through the roof, pushing up valuation of assets. Coking coal contract from January is settled at $225 a tonne, up from the previous $209 a tonne, and indications are that prices for the second quarter of the financial year will hit $250 a tonne.
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According to Gerard McCloskey, chairman and founder of the McCloskey group, which specialises in data and analysis of the coal sector, there would be frenetic corporate activity in the coal space. McCloskey was speaking on the sidelines of the Steel Raw Materials organised by IPF Online and the Bengal Chamber of Commerce & Industry (BCCI).
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“There will be immense corporate activity pushing assets to new highs,” McCloskey said. Demand apart, supply constraints were pushing up prices. There has been a spate of coking coal closured in China.
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“This year, China’s coking coal imports could be more than 40 million tonnes, up from 34 million tonnes last year,” McCloskey said.
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For domestic steel majors, it would mean a significant cost push. Indian coking coal is of poor quality and requirements are mostly met through imports. There are some analysts reports suggesting that coking coal prices could go up to $350 a tonne. McCloskey, however, said that it was a “bold” forecast.
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“When coking coal prices soared to $300 a tonne, steel prices were at $1,000 a tonne, and steel prices are nowhere near that level,” he said.
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350 is very bold but if PCX realizes just 200 or even 250 per ton that is an extra 500-700 million in revenue for PCX in 2011 and most of that should go to the bottom line.....PCX 5 million tons met coal unpriced for 2011......if this is the case, right now PCX is trading for just ~3x the potential earnings for just the 5 million tons met coal, not to mention PCX resource, facilities, another 3 million tons met coal hedged, and 20 million tons high grade thermal.http://www.business-standard.com/india/n...

Dec. 30, 2010, 10:04 p.m. EST

China price fracas leads to coal shortage

Chinese power plants stage brownouts as inventories run down

By Wang Jing

BEIJING (Caixin Online) —Already down to mere days of thermal-coal inventory, a manager at apower plant in Anhui Province has been left completely empty-handedwithout a single thermal-coal contract for 2011.

“We want to sign the contracts, but the coal producers don’t,” said theunnamed vice general manager in Anhui Province on Dec. 22, with onlythree days of inventory left.

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The shortage of coal supply at thermal-power plants has become a yearlyoccurrence in winter months. But this year, the government’s strongpolicies to keep coal prices stable have made the signing and executionof power-coal contracts even more difficult.

On Dec. 10, the National Development and Reform Commission (NDRC)published the “Notice Regarding Streamlining the Connections Among CoalProduction, Transportation and Demand for 2011.” The notice requiredthat the key power-coal contract price in 2011 be the same as in 2010,and coal producers “should not raise prices in any form.”

In the meantime, the NDRC also designed the guidance framework forinter-province railway transportation of coal. According to thisframework, total railway coal transportation will reach 932 million tonsin 2011, including 769 million tons of power coal.

The NDRC further required coal producers and users to finish signingcontracts by Dec. 31, and all the signed contracts must be reported tothe coal network trade system run by China Coal Trade and DistributionAssociation (CCTD).

However, as of Dec. 24, less than one week from the NDRC deadline, thetotal contracts signed were far short of targets. According to CCTD’sstatistics, by noon of Dec. 24, the preliminary centralized contracts —referring to successful agreements for production and transportation —totaled 224 million tons. But it only accounted for 29% of the totalrailway transportation capacity allocated for coal power.

“The coal producers and users are not taking the NDRC’s mandate as seriously as before,” an industry expert told Caixin.

The thermal-coal shortage has already emerged in several provinces in central and northern China.

In Henan Province, for example, as the coal-power inventory across theprovince was only at 2.56 million tons, far below the alert level of 3.5million tons, the State Grid Electric Power of Henan announced on Dec.16 that the “coal-power shortage is affecting the large-scale backbonepublic power plants and seriously damaging the supply of electricitythroughout the province this winter.”

According to the information obtained from the State Grid CoordinationCenter, Shaanxi, Shanxi, Hubei and other provinces have coal-powershortages — some regions in Shaanxi Province have started to implement“brown outs,” and 14 backbone power plants have less than five days ofcoal-power inventory left.

The coal-power shortage has some structural characteristics. On thenational level, the coal-power inventory level is at 17 days, which isrelatively safe. In provinces with little coal-power resources andlimited transportation capacities, however, the shortage is acute.

Qian Pingfan, researcher at the Industry Economics Research Departmentof the Development Research Center of the State Council, says that theshortage has not been caused by limited transportation capacity, but bythe disagreement on coal prices between coal producers and power plants.

“Coal producers do not agree with the prices that power plants arewilling to pay. Yet power plants are not willing to pay the prices thatcoal producers are asking for,” Qian said.

Pricing conflicts

The original intent of NDRC’s renewed intervention in coal price andtransportation negotiations is that, while the overall coal supply anddemand will be balanced in 2011 due to seasonal factors, the supply forcertain regions will be tight.

More importantly, through adjusting railway transportation capacities,the NDRC hopes to limit coal prices, because “as the task of stabilizingoverall price levels and managing inflation expectations is complicatedand difficult,” coal producers and power plants need to play their partto support overall economic development.

“The key coal-power contract prices are determined by the NDRC using the[consumer price index] and [producer price index] as benchmarks,” said amanager at a coal sales and transportation company.

The so-called “key coal-power contract price” refers to the contractprice used by large, state-owned coal producers and power plants. As thecoal prices in different regions vary under normal circumstances, theplanned price is 100 to 200 yuan ($15 to $30) per ton lower than themarket price.

Qian points out that the reason the NDRC has asked coal producers not toraise prices is that if the coal price is too high, power plants will“not be able to absorb the rising costs but to raise their output price —if the electricity price rises, the inflationary pressures will be evenmore severe.”

However, it is obvious that coal producers are not willing to signcontracts on NDRC terms. Instead, they are trying everything possible towork around the price limits.

In December 2009, the NDRC cancelled the 2010 conferences for the coalindustry. It also proposed that, starting from 2010, coal producers andpower plants would carry out the price negotiations entirely on theirown. Such a development was seen as major progress in power coal-pricereforms and streamlining.

Insiders at power plants point out that coal producers have many ways tocircumvent the price-control system. For example, even if power plantshave the planned coal contracts, coal producers may not supplyaccordingly — especially in Shanxi and Shaanxi provinces, power plantsstill need to pay extra fees before coal is shipped. Alternatively, coalproducers will ask power plants to buy from agents, who will chargepower plants more money.

The vice general manager at the Anhui power plant said that intermediarycosts account for half of the total cost of inbound coal for AnhuiProvince. “Such a high intermediary cost is unbelievable, especiallygiven that current transportation costs are so cheap.” See this report on Caixin Online.

China Coal-Prices stay near 8-wk low, market eyes rebound

Friday December 31, 2010 01:05:09 PM GMT


CHINA-COAL/

* Prices stay near 8-week low, hover at 845 yuan/T

* Some plants rebuilding stocks, albeit at low quantities

* Prices may tick higher in Jan on falling temperatures

By Fayen Wong

SHANGHAI, Dec 30 (Reuters) - China's thermal coal pricesstayed flat and hovered near an eight-week low of 845 yuan($127) a tonne this week, on tepid demand from power plants,which are unwilling to make further purchases after sufferinglosses.

Some trade sources said prices could see a small lift overthe next week or two, as some major power firms were beginningto replenish coal supplies ahead of colder winter months, butthe impact would be limited as stockpiles at these plantsstayed at healthy levels.

Coal with calorific value of 6,000 kcal/kg (NAR) tradedsteady at a range of 835 yuan to 845 yuan ($126.10-$127.64)per tonne in the week to Dec. 30, data from industry websitesxcoal.com show.

Coal with a heating value of 5,500 kcal/kg was flat at780-790 yuan, even as coal stocks at Qinhuangdao rose from aweek ago to 7.1 million tonnes.

"More ships are sailing to the port to pick up coal andthere is some spot demand returning to the market but barringany freak weather incidents, it's unlikely that we will seeany big jump in spot purchases over the next few weeks," saida Beijing-based trader.

"Utilities are very wary about over-buying and holdingexcessive stocks because prices tend to drop very quicklyafter the Spring festival as the weather starts getting warmer."

Traders based overseas also said import demand from Chinahas been weak, as the recent rally in international coalprices -- which have pushed the price of Australian and SouthAfrican coal to nearly $130 a tonne on a free-on-board basis-- means it was more economical for buyers to seek domesticsupplies.

Still, some China-based traders said prices could nudgehigher at least in January, typically the coldest period ofwinter, where heavy snowstorms have in the past slowedproduction at the mines and disrupted coal transportationnetworks.

SEVERE WINTER AHEAD

Colder winter months also tend to reduce rainfall in thesouthern provinces, in turn encouraging thermal power plantsto step up production to make up for lower hydropower.

Parts of northern and western China are bracing for moreheavy snow and below-freezing temperatures next week, aftersnowstorms and heavy fog in northwestern Xinjiang provinceclosed sections of five expressways and cut power supplies.[ID:nTOE6BF040]

Although many provinces in central China have been grippedby power cuts and blackouts in recent weeks, coal producersand traders have said the situation was not caused by ashortage in coal supplies, but a lack of cheap coal.

Power shortages in provinces covered by the central Chinagrid will rise to 8 gigawatts in January, the State Grid Newsreported on Tuesday, while earlier reports said some 14 majorpower stations in the coal-rich Shaanxi province had onlyenough coal to meet 4.4 days of demand.[ID:nTOE6BR04H][ID:nTOE6BQ03G]

Traders said major power plants owned by state-ownedutility groups were mostly comfortably stocked and were stillrunning. But many of those private power plants have allowedtheir stockpiles to dwindle because they could not afford tobuy coal in the spot market, as fixed power tariffs mean theywere unable to recover rising costs.

Jiang Zhimin, general secretary of the China Coal IndustryAssociation was quoted by the Beijing Times newspaper assaying on Monday that coal inventories in major power plantsacross the country were sufficient for 15 days of generationas of Sunday, above the critical level of 10 days' combustion.

Coal prices in Australia rose about $2.00 to $128.67 atonne on Thursday, as downpours in the eastern Queenslandstate forced a string of mining companies producing mostlycoking coal to declare force majeure on contracts.[ID:nL3E6NU024]

Queensland produces mostly coking coal, which is exportedfor steel-making, but some miners also produce thermal coalused in power generation.

Weekly Qinhuangdao prices for (Yuan) PORT STOCKS

>6,000 kcal/kg >5,500 Kcal/KG (Mln Tonnes) WEEK TO835-845 780-790 7.104 Dec30835-845 780-790 7.590Dec 24

840-850 790-800 7.006 Dec 20

845-855 795-805 6.711 Dec 13

845-855 795-805 6.663 Dec 06

860-870 805-815 5.789 Nov 29

850-860 795-805 6.170 Nov 22

840-850 790-800 6.197 Nov 15

840-850 790-800 6.387 Nov 08

825-835 765-775 6.805 Nov 01($1=6.620 Yuan)(Editing by Ramthan Hussain)