Regional Coal: Australia thermal coal sees strong price gains next year: Report

Australian thermal coal exports, a major source of raw power for Asia's electricity industry, looked set to win big price rises of 25 percent to 33 percent in 2004, an industry conference was told on Tuesday, as reported by Reuters.

"Expect a strong increase," global coal forecaster and conference convenor Gerard McCloskey told the Coal Forecast 2004 Conference.

Australia, the world's largest coal exporter, shipped A$4.5 billion ($3.2 billion) worth of thermal coal in the year to June 30, 2003.

Strong price gains would return Australian coal to the boom which pushed it to world prominence in the 1970s.

The conference also forecast on Monday that Australia's A$7.5 billion a year coking coal exports, to giant Asian steel makers, would be boosted by a 24 percent price rise in the 2004/05 Japanese fiscal year starting April 1.

This would be steel making coal's biggest gain for decades.

Prices are negotiated annually between Australian mining houses, the largest exporters of coal in the world, and Japanese steel mills and power utilities. They flow on to importers in South Korea, China, Taiwan and the rest of Asia.

The conference on Tuesday focused on a sharp split between the European and Asian markets for thermal coal because of a massive rise in freight rates.

Big Chinese imports of steel making coal and iron ore pushed the Baltic Dry Index to over 4,500 points at the end of September from 2,500 a couple of weeks before.

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Low water levels in Europe have restricted barge transport, sending thermal coal prices soaring to $54 a ton, double the price of a year ago. Mine closures in Poland and problems in China have added to the pressure.

Current European spot prices of $43-$45 were translating into 2005 forward prices of $38. The market seemed to have structurally risen to $33-$36 from $25, McCloskey said.

Meanwhile, Asia is oversupplied with thermal coal which cannot afford the trip to Europe.

McCloskey still sees a strong price increase for thermal coal in a "mating season" between buyers and sellers which normally runs from the end of the calendar year until around April 1.

However, Australian thermal coal producers had been hurt by the 29 percent rise in the Australian dollar in 2003, despite gains in spot prices to around $31 a ton from around $26 in June, he said.

Rising anxiety among Japanese power utilities over supplies was moving buying intentions from spot to contract markets, adding to pressure to prop producer profitability with higher prices, with Korean power utilities also anxious to secure supplies.

But McCloskey warned that high freight rates were adding uncertainty to thermal coal price predictions.

The freight surge, a bonus for companies such as the Japanese steel mills which control their own shipping but a burden for buyers of freight, created the downside of users looking for alternative fuels or even closing down, McCloskey said.

Total Pacific imports of thermal coal would rise by 5.45 million tons in 2004 from 251.88 million in 2003, with Australian exports, the largest, rising to 104.10 million tons in 2004 from 101.60 million in 2003.

Indonesia, China and South Africa were all forecast to increase exports, with world trade forecast to rise to 450 million tons in 2004 from 440 million the year before. ($1=A$1.39) (*)