Bank raises 2011 coal price forecast
London, 17 January (Argus) — Persistent bad weather and firm Asian demand will keep international coal prices high in 2011, according to investment bank Standard Chartered.
In a research note, the bank has increased its price forecasts for international coal prices in 2011, raising Newcastle fob by $10/t to $126/t for 2011. API 2 and API 4 are expected to average $115/t and $114/t respectively.
“Ongoing bad weather in Australia, Colombia and Indonesia has put pressure on global supply and we now therefore believe there are significant downside risks to supply in 2011,” the bank said.
The floods in Australia dominate the bank's analysis and the impact is not just on current exports but it stresses that the effects will linger on because of the damage to infrastructure. “Australian supplies face further downside risk, as floods have washed away key rail and road infrastructure,” the bank said.
“We therefore expect Newcastle fob prices to trade in the $130-150/t range in January and early February, before seasonal demand begins to fade in March,” it said.
Other major exporters are facing problems but the bank said these are more likely to limit growth than reduce absolute export volumes. In Colombia, the government's weather forecasts expect the heavy rains there to last well into the year. “We therefore expect Colombia's export growth to be subdued this year,” it said.
And in South Africa, exports could increase slightly but this would have little effect on the global supply picture.
But Indonesia is described as the “wild-card” and could be as important as Australia in driving the global supply and demand balance this year. The bank dismisses concern about domestic consumption because it believes construction of new power plants will be delayed. Instead the bank points to rains in Kalimantan, which it believes are keeping exports below previously forecast levels.
The bank added that firm demand, in particular from India and South Korea, has contributed to its upgraded price forecast.
But under current market conditions, China is actually a bearish factor as an arbitrage window has opened for Chinese buyers to resell cargoes to Asian utilities. Prices at the Chinese port of Qinhuangdao are around $140/t for 5,800kcal coal compared with the high $130s fob Newcastle. China's proximity to Japan and South Korea gives it an advantage over Australia on freight.
While the bank is bullish in the short term based on the weather, the second quarter of 2011 could see lower seasonal demand, putting pressure on prices, and so there is an expectation of greater volatility. “With weather in Indonesia unpredictable, flood effects possibly unwinding in the second half of 2011, and prospects in China unclear, 2011 is likely to be a volatile year,” the bank said.
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