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Tuesday, 20 October 09
COAL PRICES TO SURGE IN 2010 DESPITE AMPLE SUPPLY
 Commodity Online reported that, Coal prices are indeed destined to go higher as they follow the rise of ‘coal currencies’ such as Australian Dollar (AUD), South African Rand (ZAR) and Columbian Peso (COP). Strong emerging market demand is also pushing up prices although it may be limited by abundant stocks on coal producing countries.
The BofA Merrill Lynch Global Report on energy pointed out that many “oil currencies” including UAE Dirhams (AED) and Saudi Arabian Riyal (SAR) are pegged to the US dollar, but coal exporters tend to keep a free float therefore currencies linked to coal have outperformed both their emerging market and G-10 peers. The report notes that near upside gains in steam coal will be limited to US dollar weakness.
Mirroring forex, prompt API-2 thermal coal prices have jumped 9% in the past month reaching $73/mt—slightly ahead of crude oil and petroleum products—while calendar prices for 2010 have recovered to a six-week high of over $84/mt. With coal inventories swelling to record highs around the globe, any near-term upside pressure on front-month coal prices above $80/mt is likely to be limited to further USD weakness. Although BofA Merrill Lynch Global report said that steam coal forwards to flatten significantly over the next six months as the recovery takes hold, excess supply will still dampen any upside pressure on near-dated spreads in the short-run.
The outlook for thermal coal markets should improve significantly and high inventories will be burned down next year as coal is set to regain market share relative to natural gas. Chinese and Indian demand for coal is already growing strongly. With a demand recovery coming in the rest of Asia, South Africa and the Atlantic Basin, the market is likely to tighten pretty quickly in 2010.
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As a result, API-4 South African coal prices have appreciated strongly in USD but not so much in local currencies. This situation arises because some of the world’s largest coal exporters like South Africa, Australia, and Colombia keep a free float. The logic supporting the recent move in coal prices is compelling. On the one hand, coal happens to be exported out of countries with a free-floating currency regime. On the other side, coal is the fuel of choice in an EM-led domestic recovery, as China, India, and many other emerging economies will require bucket-loads of cheap energy to maintain a fast pace of growth. Having said that, coal prices have lagged the rapid weakening of the trade-weighteddollar, suggesting coal prices could trend higher only to catch up with the recent currency moves, BofA Merrill Lynch Report said.
A wall of inventories will cap steam coal near-term
With coal inventories swelling to new record highs around the globe, any nearterm upside pressure in front-month coal prices above $80/mt will require further dollar weakness. Europe, a key consuming area for thermal coal, currently holds record stockpiles of Colombian and Russian material at its main ports in Amsterdam, Antwerp, and Rotterdam. European utilities are also awash with coal. In the US, the situation is even more pronounced, with inventories held at utilities standing at 70 days of consumption, 13 days higher than last year. In fact, coal inventories are pretty healthy everywhere, including parts of the Asia Pacific. India, and China are an exception as stocks seem to be drawing there at the moment.
Rising coal production will also limit upside on prices
Another factor limiting the near-term upside on coal is the healthy growth in supply. Russia seems to have turned its corner following an earlier slump in coal exports. During the first eight months of this year, Russian exports to Europe increased 19% relative to last year driven by rail and port de-bottlenecking. The export performance out of Australia has improved significantly in the past weeks and currently stands at the highest in over four months. Port congestion is down to just 20 ships, from 42 a few weeks ago, and should continue to improve gradually throughout next year as Newcastle adds a third terminal in Q1. Production in Colombia is also looking a lot healthier.
However, the thermal coal market will rebalance in 2010...
None of these bearish factors will last and we expect a rebound in global coal prices next year. The global thermal coal market will firmly rebalance primarily from the demand-side, BofA Merrill Lynch report stated. It expects the demand in Pacific region to outstrip that of West. demand in the Pacific outstrips demand in the West. Chinese and Indian demand for coal is already growing pretty strongly and once we add a demand recovery in the rest of Asia Pacific, South Africa, and the Atlantic Basin, the current excess supply in the market will be soaked up pretty quickly. A combination of power generation growth, industrial demand recovery, generation capacity growth, and fuel switching will firmly support global coal demand next year at around 3% growth, from -0.3% this year, according to BofA Merrill Lynch Global Report.
...as demand for coal is recovering, led by China and India
Looking at the main demand drivers in turn, demand in China and India is already growing pretty rapidly, driven by the upsurge in electricity generation and strategic stock-building of the past months. In the first eight months of this year, China imported 74 million mt of coal, up from 29 million mt in the prior year, a truly mind-boggling increase. As exports more than halved in the same period, China firmly switched from being a net exporter last year (4.8 million mt) to being a net importer (59 million mt YTD) (Chart 12). China has been moving away from Australia and Indonesia, at the margin, and started to source coal from farther away places like Russia, South Africa, Canada and Colombia— helped by low freight rates.
With prices below $100/t, China will remain a net importer
Paradoxically, the higher Chinese imports have occurred at a time that domestic production has surged to a new record. As regulators have kept domestic coal prices high relative to seaborne prices, Chinese utilities have moved to imported coal. Regional distribution bottlenecks, particularly in the railway system, have also continued to prevent the domestically produced coal to travel from the inner regions to the coastal demand centers, hence supporting coal prices in the East.
Coal demand in Asia Pacific is improving very rapidly...
In India, an acute shortage of domestic coal and a string of supply constraints have driven coal imports sharply higher. This material has come mainly from. Only 5 years ago, India hardly imported any coal but it now soaks up 70 million tons per annum. Bucking the global trend, Indian coal stocks are critically low due to a combination of monsoon rains, domestic mine strikes and stagnant production growth.
Meanwhile, coalfired generation growth is back to record highs but is now reportedly being constrained by the lack of coal (Chart 15). At this rate, coal supply shortages in India are likely to be prevalent for a long time. The government set stringent targets for electricity generation capacity and the share of coal-fired plants in the generation mix is set to rise to 57% by 2010, from 53% currently. With domestic demand for coal likely to grow unabated, Indian companies are now in the
process of buying up coal assets in South Africa, Indonesia, and Australia.
...and will eventually pull global thermal coal prices higher
While China and India currently stand out, demand will also come back strongly in other Asian countries, such as Korea, Taiwan, and Thailand. Japan is probably the only country that will not exert strong international buying pressure because domestic nuclear power generation capacity is coming back. Steadier demand growth is not only confined to Asia though. Power generation in South Africa, where 70% of capacity is coal-fired, is now almost back at pre-crisis levels. Relative to last year, power output is down by a meager 1.2%. Once coal demand returns to trend growth of 5%, it will quickly outpace production growth, which has remained fairly constant in the past years. Moreover, Eskom is constructing a number of coal-fired power stations, probably helping to drive coal demand higher.
Gas to coal fuel-switching will boost US, Europe demand
Capacity growth could also be a significant driver in the United States where a number of new coal-fired plants are coming to the market. Out of 19 GW potentially added next year, 7.5 GW alone will be coal-fired. No doubt, the recession has significantly reduced the demand for power and expanded reserve margins. However, coal is likely to gain back significant market share next year as the recovery sets in. Although gas-fired plants have displaced coal-fired generation
recently, this situation is not expected to last. Importantly, coal-to-gas switching occurred on the back of exceptionally low gas prices. BofA Merrill Lynch Global Report said that the spread of USnatural gas to coal will widen again next year, supporting coal demand.
In Europe, a toxic combination of falling power and industrial demand together with cheap natural gas prices has also contributed to loosen up the demand for the fossil fuel. Power supplies are likely to be reasonably comfortable this winter due to high natural gas inventories. Still, we expect this situation to reverse rapidly in the first half of next year. The lagged impact from rising oil prices will feed through to indexed European natural gas. Unless CO2 prices rise sharply—
which is unlikely given the current oversupply of permits—coal demand, which has also suffered from fuel switching, will pick up fairly significantly.
Economic recovery may push coal to over $100/t in 2010
In sum, the outlook for the thermal coal markets could improve significantly going forward.. Increased demand coupled with stronger “coal currencies”, could push European API-2 coal prices above $100/mt by the middle of next year, the report added.
Dry freight will buck the trend, remaining range-bound
Coal demand is set to eventually pick up driving up coal prices next year but freight rates will be low. A massive order book of new dry bulk ships will continue to push new ships online at a very rapid rate. Although demand for dry bulk goods, importantly iron ore, is improving everywhere as steel capacity utilization is rising, shipping bottlenecks will not reappear for another 2-3 years at the earliest, the BofA Merrill Lynch Global Report added.
Source: Commodity Online
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Wednesday, 21 October 09
LAW ACCOMMODATES NATIONAL AND INVESTOR INTERESTS
COALspot.com (Indonesia): According to ESDM, the government has issued five Lawson the energy and mineral resources sector. These laws will prioriti ...
Wednesday, 21 October 09
INDONESIA'S BUKIT ASAM GETS COAL RAILWAY APPROVAL
Reuters reported that, Indonesian state coal miner PT Tambang Batubara Bukit Asam Tbk said on Wednesday it had been given government approval to sta ...
Wednesday, 21 October 09
COAL DEMAND SOARS AS ASIA ECONOMIES REBOUND - PEABODY
Reuters reported that, Demand for coal to generate electricity and make steel in China and India is expected to grow by 7 percent to 8 percent annua ...
Wednesday, 21 October 09
INDONESIAN SHOCK FOR INDIAN POWER PLANTS
Business-Standard reported that, India’s ambitious plans to generate an additional 180,000 Mw of power in the next seven years will face hurdl ...
Wednesday, 21 October 09
DUTA GRAHA PLANNING TO DELVE INTO MINING SECTOR
The Jakarta Globe reported that, PT Duta Graha, one of the country’s largest private engineering firms, says it intends to diversify into the ...
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- Wilmar Investment Holdings
- Tamil Nadu electricity Board
- White Energy Company Limited
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Eastern Coal Council - USA
- Iligan Light & Power Inc, Philippines
- Sarangani Energy Corporation, Philippines
- Semirara Mining and Power Corporation, Philippines
- Jorong Barutama Greston.PT - Indonesia
- Bhatia International Limited - India
- Trasteel International SA, Italy
- Pipit Mutiara Jaya. PT, Indonesia
- International Coal Ventures Pvt Ltd - India
- Orica Australia Pty. Ltd.
- Indika Energy - Indonesia
- San Jose City I Power Corp, Philippines
- Mintek Dendrill Indonesia
- Australian Coal Association
- Cement Manufacturers Association - India
- Videocon Industries ltd - India
- Chamber of Mines of South Africa
- The University of Queensland
- Pendopo Energi Batubara - Indonesia
- Sical Logistics Limited - India
- Posco Energy - South Korea
- Dalmia Cement Bharat India
- Thai Mozambique Logistica
- Sakthi Sugars Limited - India
- Salva Resources Pvt Ltd - India
- GVK Power & Infra Limited - India
- European Bulk Services B.V. - Netherlands
- Borneo Indobara - Indonesia
- Meenaskhi Energy Private Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Central Electricity Authority - India
- The State Trading Corporation of India Ltd
- Bukit Makmur.PT - Indonesia
- McConnell Dowell - Australia
- SMC Global Power, Philippines
- Samtan Co., Ltd - South Korea
- Maharashtra Electricity Regulatory Commission - India
- Energy Link Ltd, New Zealand
- Neyveli Lignite Corporation Ltd, - India
- OPG Power Generation Pvt Ltd - India
- IHS Mccloskey Coal Group - USA
- Gujarat Sidhee Cement - India
- Larsen & Toubro Limited - India
- Ministry of Transport, Egypt
- Manunggal Multi Energi - Indonesia
- The Treasury - Australian Government
- Leighton Contractors Pty Ltd - Australia
- Wood Mackenzie - Singapore
- Vijayanagar Sugar Pvt Ltd - India
- Minerals Council of Australia
- Sojitz Corporation - Japan
- Bhoruka Overseas - Indonesia
- Madhucon Powers Ltd - India
- Kohat Cement Company Ltd. - Pakistan
- Bhushan Steel Limited - India
- Cigading International Bulk Terminal - Indonesia
- Essar Steel Hazira Ltd - India
- Goldman Sachs - Singapore
- Independent Power Producers Association of India
- Renaissance Capital - South Africa
- South Luzon Thermal Energy Corporation
- Bukit Baiduri Energy - Indonesia
- CIMB Investment Bank - Malaysia
- VISA Power Limited - India
- Intertek Mineral Services - Indonesia
- Jaiprakash Power Ventures ltd
- Price Waterhouse Coopers - Russia
- Asmin Koalindo Tuhup - Indonesia
- Metalloyd Limited - United Kingdom
- Electricity Authority, New Zealand
- Mjunction Services Limited - India
- Chettinad Cement Corporation Ltd - India
- Holcim Trading Pte Ltd - Singapore
- Sinarmas Energy and Mining - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Romanian Commodities Exchange
- Energy Development Corp, Philippines
- ASAPP Information Group - India
- Jindal Steel & Power Ltd - India
- Formosa Plastics Group - Taiwan
- Ind-Barath Power Infra Limited - India
- IEA Clean Coal Centre - UK
- Globalindo Alam Lestari - Indonesia
- Vizag Seaport Private Limited - India
- Mercator Lines Limited - India
- Toyota Tsusho Corporation, Japan
- Economic Council, Georgia
- Planning Commission, India
- London Commodity Brokers - England
- Petron Corporation, Philippines
- Xindia Steels Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Standard Chartered Bank - UAE
- Indogreen Group - Indonesia
- Bayan Resources Tbk. - Indonesia
- India Bulls Power Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Kaltim Prima Coal - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Africa Commodities Group - South Africa
- Kobexindo Tractors - Indoneisa
- Grasim Industreis Ltd - India
- Antam Resourcindo - Indonesia
- MS Steel International - UAE
- Indian Oil Corporation Limited
- Siam City Cement PLC, Thailand
- Kalimantan Lumbung Energi - Indonesia
- Eastern Energy - Thailand
- Parliament of New Zealand
- Sree Jayajothi Cements Limited - India
- Meralco Power Generation, Philippines
- Aditya Birla Group - India
- Makarim & Taira - Indonesia
- Power Finance Corporation Ltd., India
- Singapore Mercantile Exchange
- Bulk Trading Sa - Switzerland
- LBH Netherlands Bv - Netherlands
- Straits Asia Resources Limited - Singapore
- Kumho Petrochemical, South Korea
- Global Green Power PLC Corporation, Philippines
- Ministry of Finance - Indonesia
- New Zealand Coal & Carbon
- Rio Tinto Coal - Australia
- CNBM International Corporation - China
- Star Paper Mills Limited - India
- Sindya Power Generating Company Private Ltd
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Binh Thuan Hamico - Vietnam
- Georgia Ports Authority, United States
- Bharathi Cement Corporation - India
- Miang Besar Coal Terminal - Indonesia
- Latin American Coal - Colombia
- Tata Chemicals Ltd - India
- Mercuria Energy - Indonesia
- Timah Investasi Mineral - Indoneisa
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Offshore Bulk Terminal Pte Ltd, Singapore
- Directorate General of MIneral and Coal - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Maheswari Brothers Coal Limited - India
- Interocean Group of Companies - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Riau Bara Harum - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Semirara Mining Corp, Philippines
- Global Coal Blending Company Limited - Australia
- Savvy Resources Ltd - HongKong
- Marubeni Corporation - India
- Central Java Power - Indonesia
- Edison Trading Spa - Italy
- Gujarat Mineral Development Corp Ltd - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Coastal Gujarat Power Limited - India
- Aboitiz Power Corporation - Philippines
- AsiaOL BioFuels Corp., Philippines
- Bangladesh Power Developement Board
- Kartika Selabumi Mining - Indonesia
- Baramulti Group, Indonesia
- PTC India Limited - India
- Rashtriya Ispat Nigam Limited - India
- SN Aboitiz Power Inc, Philippines
- Malabar Cements Ltd - India
- Electricity Generating Authority of Thailand
- Kepco SPC Power Corporation, Philippines
- ICICI Bank Limited - India
- Indo Tambangraya Megah - Indonesia
- Thiess Contractors Indonesia
- Barasentosa Lestari - Indonesia
- Indian Energy Exchange, India
- GN Power Mariveles Coal Plant, Philippines
- GAC Shipping (India) Pvt Ltd
- Simpson Spence & Young - Indonesia
- Parry Sugars Refinery, India
- Siam City Cement - Thailand
- Commonwealth Bank - Australia
- Medco Energi Mining Internasional
- PNOC Exploration Corporation - Philippines
- Lanco Infratech Ltd - India
- Coal and Oil Company - UAE
- Coalindo Energy - Indonesia
- Banpu Public Company Limited - Thailand
- Anglo American - United Kingdom
- Kideco Jaya Agung - Indonesia
- Indonesian Coal Mining Association
- Heidelberg Cement - Germany
- TNB Fuel Sdn Bhd - Malaysia
- PowerSource Philippines DevCo
- Global Business Power Corporation, Philippines
- Australian Commodity Traders Exchange
- Kapuas Tunggal Persada - Indonesia
- Agrawal Coal Company - India
- Therma Luzon, Inc, Philippines
- Merrill Lynch Commodities Europe
- Orica Mining Services - Indonesia
- Deloitte Consulting - India
- Gujarat Electricity Regulatory Commission - India
- Altura Mining Limited, Indonesia
- SMG Consultants - Indonesia
- Ambuja Cements Ltd - India
- Ministry of Mines - Canada
- Directorate Of Revenue Intelligence - India
- PetroVietnam Power Coal Import and Supply Company
- Oldendorff Carriers - Singapore
- Uttam Galva Steels Limited - India
- Karaikal Port Pvt Ltd - India
- TeaM Sual Corporation - Philippines
- Port Waratah Coal Services - Australia
- GMR Energy Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Attock Cement Pakistan Limited
- Vedanta Resources Plc - India
- Carbofer General Trading SA - India
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