Coal price may decline as Indonesia, Australia exports gain: Report
Monday, January 9 2006 - 02:22 AM WIB
A price reduction of almost 20 percent to less than $45 a metric ton in Asia is forecast by analysts at National Australia Bank. Prices in Rotterdam, the European port used by utilities including E.ON AG of Germany, will drop to $55 a ton from $60.70 in 2005, according to Societe Generale.
Mining companies including BHP Billiton and Rio Tinto Group, two of the world's three largest miners, boosted investment in production last year as prices jumped. A shortage of digging equipment prevented production from meeting demand that rose in China, Europe and the U.S., where higher natural gas prices caused some utilities to use more coal.
?A lot of coal will flood into the market? as the shortage of machinery is resolved, said Ari Hudaya, president- director of PT Bumi Resources, the largest coal producer in Indonesia.
Utilities that may benefit include Chubu Electric Power Co., Japan's biggest coal buyer. Chubu Electric is now negotiating prices of annual supply contracts with Rio Tinto of London, Melbourne-based BHP and other mining companies. The contracts that start April 1 cover coal burned in power stations and set a benchmark for world markets.
?The contractual prices would likely be affected by lower spot coal prices? than a year earlier, said Chubu Electric spokesman Hirotaka Iwase. The company intends to conclude negotiations by March 31, he said.
Indonesia, which overtook Australia last year as the world's biggest coal exporter to utilities, has doubled shipments since 2000. Exports may rise another 8 percent this year, London-based shipbroker Clarkson Plc estimates. Australian exports may rise 3 percent to 112 million tons.
?There's been a strong supply reaction from Indonesia and Australia to high prices,? said Andrew Harrington, industrial economist at Australia & New Zealand Banking Group Ltd., who expects prices to fall to $42 a ton in the Asia-Pacific market.
Europe imports about four-fifths of its coal for the power industry from South Africa, where port and rail capacity constraints limited shipments in 2005. Mining companies in the country, including Swiss-based Xstrata Plc, are working to increase exports. Shipments will rise to 70 million tons in 2006 from between 67 and 68 million tons last year, SocGen said.
While prices decline in Asia and Europe, U.S. coal costs will stay high, according to James Rollyson, a coal industry analyst at Raymond James Financial in Houston. Utilities need to rebuild inventories, and import terminals and railroads are operating at capacity, preventing a surplus outside the U.S. from entering the country, he said.
Rollyson forecasts eastern coal prices of about $50 a ton this year, 15 percent higher than the five-year average, and western prices of $20 to $22 a ton. The western average is about $7.50 a ton in the past five years.
?The main culprit for any increase in supply is Indonesia,? said Tim Barker, who helps manage about $30 billion in assets at BT Financial in Sydney, including BHP Billiton shares. ?Profits will be lower? from mining coal, he said.
The price for coal for immediate delivery from Australia's Newcastle port, the world's largest coal export terminal, already has declined as traders anticipate a lower settlement price in the annual contract talks between Japan and Australia.
The coal export price from Newcastle has fallen 22 percent since mid-July to $39.16 a ton on Dec. 30, according to globalCoal. The price at South Africa's Richards Bay terminal, which supplies many European power companies, was $44.13. (*)