Gary - picking up more interest on coal. You were one of the first to recommend HLB.to = HLSRF.pk. You may have been early, but looks like this one could be a major opportunity as coal has a long way to catch up with oil. Natural gas, I beleive, is a bargain.
COAL PRICE LIKELY SET TO DOUBLE
MINES FLOODED Australian supply
crisis comes as negotiations loom
BY PETER KOVENFinancial Post pkoven@nationalpost.com
Robert Stan has been watching the news with more-thanusual interest lately.
He is chief executive of Grande Cache Coal Corp. (GCE/TSX), a small metallurgical coal producer that is currently in pricing negotiations with its customers. As those talks go on, a supply crisis has emerged in Australia, prompting some experts to forecast prices to more than double in fiscal 2008.
“The reports suggest folks are looking for a fairly large increase, certainly on the producer side,” Mr. Stan said. “Problems in Australia are going to exacerbate an already tight market for coking coal.”
Unlike base metals, such as nickel and copper, which trade freely, coal prices are negotiated with customers in fixed 12month contracts that go into place starting April 1. The spot market itself is very small.
In recent days, speculation that the next round of contracts will be set at much higher prices has led to heavy buying of shares of producers such as Grande Cache and Fording Canadian Coal Trust (FDG.UN/TSX), which holds a majority stake in the Elk Valley Coal Partnership. Grande Cache is up more than 50% in just a week.
This is all tied to problems that emerged last week in Australia, where BHP Billiton PLC ( BLP/LON), the world’s largest metallurgical coal producer, declared force majeure on all the output from its mines in Queensland due to heavy flooding. Metallurgical coal, including coking coal, is a key input for steelmaking.
That couldn’t have come at a better time for the speculators. The April 1 date is looming, and the major price negotiations are barely underway. Now some experts are suggesting the prices could top US$200 a tonne. That would have been unthinkable even five years ago, when they were in the US$40 range.
Reports have emerged that Xstrata PLC (XTC/LON), a major coal producer, tabled an offer of US$210 a tonne to Japanese customers before the Queensland flooding.
But everyone is watching to see what happens with BHP and its joint-venture partner Mitsubishi Corp. (MSBHF/ PINK). The floods put them in a tricky position, because they obviously stand to benefit from higher prices caused by their own operational problems.
“BHP has to balance the needs of its customers longerterm against what its institutional shareholders are going to tell them if they settle too low,” said one analyst who asked not to be named. “They could settle at US$150 and Xstrata could turn around and get US$200.” That would bring back sour memories of 2004 for BHP investors, when Xstrata settled its prices at more than double BHP’s levels.
However, while investors are betting on much higher prices, one thing that could play against them is the looming threat of a U.S. recession, which could lead to slowing demand if it spreads across the global economy. Those thoughts will be on the minds of producers and customers as they negotiate prices.
There is also debate about just how tight the coal market is. As Mr. Stan sees it, the market is not vastly undersupplied based on the amount of coal that can be produced, but infrastructure challenges make it tough to keep everything in balance. “Port constraints are making it hard to get enough coal out,” he said.
Another key issue underpinning the talks is the Chinese steelmakers, who have been largely self-sufficient with their coal so far. But as their production increases, Mr. Stan expects it to have a “significant effect” on the international market. |
