Coking coal contracts looking rosy

CHINESE demand for metallurgical coal has increased price expectations going into the 2010 Japanese financial year.

Angie Tomlinson

Bloomberg reported that Goldman Sachs JBWere had increased its forecast for metallurgical coal by 16% on the back of rising Chinese demand and predictions for global crude steel production to rise 12% in 2010.

China has been stockpiling its domestic production and has increased monthly imports from a traditional ceiling of 5 million tonnes to a high of 16.1Mt in June and 11.8Mt in August.

Goldman Sachs JBWere pointed out that a risk to Chinese steel output was the prospect that production had already run ahead of underlying demand and falling prices.

Brokerage RBS Morgans in late September was bullish about future coking coal contracts, with Macarthur Coal its pick due to the producer’s high exposure to coking coal exports.

“We believe the risks to our JFY10 contracted coking coal prices are firmly to the upside as a result of: evidence of ongoing spot demand from Chinese and Indian customers well into FY10; the likelihood that security of supply concerns from traditional customers will add tension throughout contract negotiations commencing from late October; and, mine and infrastructure issues in Queensland keeping the supply-side constrained,” the broker said.

It applied a coal price deck of $US200 per tonne for hard coking coal for JFY10, $130/t for PCI coal and $110/t for semi-soft.

RBS Morgans commented that China’s import rate was likely to ease for the rest of 2009 and was unlikely to collapse. It pointed to presentations by BHP Billiton and McCloskey that indicated China will remain a coking coal importer for the rest of the year.

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