Thermal coal negotiations with Japanese power companies are expected to ramp up early this year, with UBS predicting an increase to $58/t.
“Spot prices have increased, underpinned by long duration of demurrage at Newcastle and lower Chinese exports. However, consumption has been limited by warmer weather in Europe and Asia, which has hampered negotiations,” UBS analysts said late last week.
New South Wales producer Centennial Coal has one of the biggest exposures to thermal coal but the majority (75%) of its output is sold onto the domestic market with just 14% bound for overseas. Gloucester Coal will be most impacted by negotiations with 60% of its output bound for export.
With figures still pending for 2006, thermal coal exports for last year are expected to rise 3.7% year-on-year based on an annualised projection from the first 11 months of the year.
An indication of what is in store for PCI prices was given recently with Canadian producer Fording Canadian Coal Trust securing a PCI 2007 contract price of $67.50–68/t from South Korean steelmaker POSCO.
“However, Japanese steel producers contracted more than half of LV [low volatile] PCI coal brands at $63–65/t FOB, which means that if LV PCI coal prices for FY07 were concluded at $US67.50, prices of more than half the brands are obliged to rise by $US2–4/t,” UBS said.
Hard coking coal negotiations by the majors are all but completed with a fall below the historically high levels of last year.
“HCC prices were negotiated lower by the major suppliers and customers with the four Australian companies [BHP Billiton Mitsubishi Alliance, Anglo Coal, Xstrata Coal and Peabody Energy] all accepting price cuts of >$US18/t to $US98/t,” UBS said.
UBS had projected prices to settle at $US95/t underpinned by weaker demand, as steel mills substituted for lower value semi-soft coking coal.
Coking coal exports for November 2006 were down 3% month-on-month to 6.4Mt – a reflection on port constraints, operational problems and the desire by steel mills to lower input costs by switching to semi-soft coking coal, according to UBS.