Coking coal prices to remain high but Australian supply to cap gains -analysts
09.30.2005, 01:58 AM
forbes.com
SYDNEY (AFX) - Coking coal prices are forecast to remain at high levels until the end of 2006 but increasing supply from Australia is limiting further gains in prices, analysts said.
They said the current benchmark term price of 125 usd a metric ton for coking coal, which more than doubled on April 1, is supported by recovering steel prices and the supply of coking coal remaining tight.
But, Citigroup Smith Barney analysts said in a research note that a surge in coking coal supply from Australia, whose exports jumped 23 pct in the first half of 2005 compared to a year earlier, is limiting further rises in the price of coking-coal.
The increasing supply from Australia led the Citigroup analysts to moderate their price forecasts for next year to a rollover in the current contract price.
Previously, the Citigroup analysts had forecast a rise to 135 usd a ton.
Commodity analysts said Australia's ability to supply more coking coal shipments is currently hampered by port capacity at key export terminals such as Dalrymple Bay, which services the Bowen Basin mines in the Australian state of Queensland.
But Citigroup analysts noted Australian miners are overcoming the infrastructure constraints by exporting coking coal at the expense of lower priced thermal coal.
Despite the prospect of rising Australian supplies, Macquarie Bank commodity analysts said, in a research report, a reported rise in cash costs for US producers to 80-100 usd a ton will act as a significant support for prices.
They expect this to be the case until new lower cost capacity comes on stream in Indonesia and Australia.
The Macquarie analysts are also tipping that benchmark prices will remain at current levels following the completion of the annual price negotiations with Japanese and Chinese steel mills, which will soon get underway.
In contrast, iron ore prices are likely to rise.
Analysts said Australian exporters such as BHP Billiton and Rio Tinto are expected to seek iron ore price rises, again arguing they should share in the benefits of lower shipping costs from Australian mines to Asian markets compared with the shipping costs from other sources in Brazil and India.
The Macquarie commodity analysts this week upgraded their forecasts for bulk commodities to reflect its 'stronger for longer' view as China remains the key demand driver.
They said iron ore producers are best placed to gain further price rises next year, adding that market opinion is changing from previous expectations of a roll over in prices.
'With upcoming 2006 price negotiations drawing nearer, we are seeing an unprecedented shift in expectations for 2006 iron ore prices,' they said.
The Macquarie commodity analysts now forecast a 15 pct rise in iron ore prices compared with an earlier view that prices will be rolled over.
Analysts said iron ore and coking prices are being supported by a surge in world steel production over the past five years, and particularly growth in China's steel output.
Macquarie Bank senior commodities analyst Jim Lennon recently told a group of industry participants in Sydney while growth in China's steel output will slow from a present rate of 27 pct year-on-year, output will still be high.
He expects China's steel output in 2005 to be 345 mln metric tons or 30 pct of the world production of 1.129 bln tons, an increase from 274 tons in 2004.
Lennon expects China's steel output to reach 516 mln tons by 2010, or 37 pct of forecast world demand of 1.389 bln tons.
Meanwhile, China is expected to be a net importer of coking coal in the coming years due to the closure of small and inefficient mines, analysts said.
(1 usd = 1.31 aud)
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