Coal markets in 2010

PATERSONS Securities coal analyst Andrew Harrington gives his outlook on prices, coal stocks and the issues affecting their performance in 2010.
Coal markets in 2010 Coal markets in 2010 Coal markets in 2010 Coal markets in 2010 Coal markets in 2010

Courtesy Macarthur Coal.

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While coal contract prices for this Japanese financial year are well down on the record prices set in 2008, Harrington along with other analysts anticipates higher benchmarks in April.

He forecast premium coking coal for the upcoming Japanese financial year to lift 25% to $US160 a tonne, saying this was at the lower end of expectations with other analysts forecasting between $150 and $200/t.

With a rise in coking coal prices, Harrington expects pulverised coal injection coal to reach $120/t and thermal coal to increase about 20% to $85/t.

Leading PCI coal producer Macarthur Coal caught market observers off-guard days before Christmas as it launched a $669 million takeover bid for Gloucester Coal.

Harrington is still gathering information to get a better picture of what the merged entity will look like but told ILN the acquisitions would be broadly good for Macarthur, opening up different export channels and diversifying the geography and coal products of its operations.

Encouraging industrial production figures from China and the US support a better outlook for coking and thermal coal but the strong Aussie dollar will hit the earnings of local producers.

“There’s a lot of positive sentiment out there for resources and a lot of positive sentiment in terms of global growth, but I think a lot of investors should keep in the back of their minds that exporters are going to be hurt by the strengthening currency,” Harrington said.

He expects the impact to be seen in February when companies start reporting for the first half of the financial year.

Coal stocks have rallied strongly from the credit-crunched lows of 2009 and Harrington warned of possible turbulence in the next six months.

“Some of the share price appreciation is perhaps not focusing or deliberately ignoring some of the currency impacts that have come through,” he said.

A big trend for listed companies last year was to raise cash through capital raisings and Harrington sees no major changes in the lending environment.

“By all accounts credit finances are still relatively either expensive or full of covenants making it less attractive.”

With takeover battles still carrying on for Rey Resources, Bowen Energy and Rocklands Richfield, 2010 would “definitely” see more takeover action.

But the big unknown is the impact of the Carbon Pollution Reduction Scheme on the industry if the legislation gets passed.

Going by the performance of coal stocks in the past months, Harrington said the markets just didn’t believe the CPRS would have much impact on the industry.

“The obvious factor is that you really need to raise the [carbon permit] price to a very high level to knock out coal-fired power.”

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