I'm betting FDG will start to pay taxes in 2005.
BHP May Increase Coal Price 79% in 2005, Survey Shows (Update1)
Nov. 18 (Bloomberg) -- BHP Billiton, the world's biggest supplier of coal for steelmaking, may raise 2005 contract prices for the fuel by a record 79 percent as buyers such as Arcelor SA and Nippon Steel Corp. compete for lean supplies, analysts said.
Prices for the so-called coking coal may average $100 a ton in the year starting April 1, compared with $56 this year, according to a Bloomberg survey of eight analysts and investors ahead of a coal conference that starts today in Sydney.
Growth in demand for the fuel, used in blast furnaces, is outpacing development of new mining capacity, BHP Billiton said in September. Profit at BHP Billiton, the world's biggest mining company, rises by $25 million for every $1 gain in the price of coking coal, said Glyn Lawcock, an analyst at UBS AG.
``It's going to be a strong outcome'' for the mining companies, said Ric Ronge, who helps manage $13 billion in assets at Invesco Asset Management in Melbourne. ``The driving factor for steelmakers is they have to secure raw materials.''
BHP Billiton supplies 30 percent of the world's coking coal exports, the Melbourne-based company said on Sept. 1. The company competes with Anglo American Plc, Xstrata Plc and Fording Canadian Coal Trust.
Peter Coates, head of Xstrata's coal unit and Tom Kuzman, managing director of Wesfarmers Ltd.'s Curragh coal division are among executives attending McCloskey's Australian Coal 2004 conference in Sydney today. The conference ends tomorrow.
Costs v Earnings
``I am very much concerned by the huge price increase of coking coal,'' Arcelor Chief Executive Guy Dolle said in a Nov. 15 interview. ``It will be higher than 50 percent on average. Today, the spot prices for coking coal are close to 100 percent higher than the contract of last year.''
The Luxembourg-based company, the world's biggest steelmaker, is ``close'' to finalizing negotiations for coking coal, he said. BHP Billiton spokeswoman Tania Price declined to comment on the price talks.
Global steel output may rise 3.5 percent in 2005, consultant MEPS (International) Ltd. has said, pushing up demand for raw materials.
Benchmark coking coal prices may reach $130 a ton from April 1, Colin Gubbins, director of finance and consultancy at the McCloskey Group, said at the conference.
`Customer Apprehension'
``There doesn't appear to be any logic in pricing any more,'' Gubbins said. ``It's purely based on customer apprehension. They don't want to be short of coal, they are more concerned about getting their supplies of coal because they want to get their coke quality and coke output.''
Rising global demand for steel helped BHP Billiton, Rio Tinto Group and other miners set record coking coal and iron ore prices this year, and report higher profits.
BHP Billiton shares have risen 16 percent so far this year, compared with a 7 percent gain in the 43-member Bloomberg World Mining Index. A $50 a ton increase in prices would add $6 billion to the revenue of coking coal producers, Peter O'Connor, a resources analyst at Credit Suisse First Boston in Sydney, told the conference.
``There's talk in the market that it would be as much as $130 a ton, and that's a huge increase from what the market is expecting at about $85 to $95 a ton,'' said Lawcock. UBS in October said prices may rise to $90 a metric ton.
BHP Billiton's carbon-steel materials unit, which produces iron ore, coking coal and manganese, contributed about a fifth of the company's earnings before interest and tax in the year ended June 30.
Increasing Production
World trade in coking coal is expected to rise 2 percent to 219.3 million tons in 2005, according to figures from the Australian government. BHP Billiton forecasts global trade in the fuel may rise 50 percent by 2010, and it has announced plans to almost double output at its coking coal operations to 100 million tons a year by that date.
``The coking coal market is very strong, and we see upside risks in our forecasts,'' of $95 a ton, said Brendan Harris, an analyst at Macquarie Equities Ltd.
Nippon Steel, Japan's largest steelmaker, in January agreed to pay Australian suppliers a fifth more for its coking coal in the year that started April 1, with prices rising to $56 a ton. In 2003, prices were agreed around April 23.
Spot coking coal prices have risen to about $100 a ton since the contract prices were agreed last January. Xstrata didn't settle this year's contracts until April and secured prices averaging $80 a ton and as high as $135 a ton.
``The coking coal suppliers were criticized by some shareholders for settling too early, and this year they will be harder to bargain with,'' said Mark Pervan, head of research at Daiwa Securities SMBC in Melbourne.
Global coal demand has risen every year since 1999, according to BP Plc. Freight rates for iron ore, coal and other dry-bulk commodities have doubled since June as China buys more raw materials, creating a shortage of vessels. More than 90 percent of world trade is carried by ship, according to the International Shipping Federation. |
