US riding price wave on Australian flooding

SHARES in US coal operators are on the rise with the heavy flooding in Queensland tying up large amounts of the world’s metallurgical coal, causing prices to soar and Asian importers to seek out other sources.
US riding price wave on Australian flooding US riding price wave on Australian flooding US riding price wave on Australian flooding US riding price wave on Australian flooding US riding price wave on Australian flooding

American Eagle's raw coal stockpile.

Donna Schmidt

Reuters quoted Export Commodities International coal trader Frank Kolojeski as saying that mills in Japan, Taiwan and Korea had begun enquiring about near-term US coal at market prices higher than pattern for the first quarter.

Some analysts, the news service said, have noted that steelmakers feeling the pinch have also begun bidding up US export prices for high-grade coal as the nation’s product is among the best worldwide.

According to a Wall Street Journal report Monday afternoon, the benchmark contract for coal from central Appalachia, a hotbed for the steelmaking product, was at a 25-month high of $US83.45 a ton on the New York Mercantile Exchange, up 11% in one week.

Major producers in the area include Consol Energy, James River Coal, Massey Energy and Alpha Natural Resources. Shares for Consol were up about 5.4% Monday, while Alpha rose 3.4% to $62.04, Massey went up 2% and another Appalachian player, Peabody Energy, rose 1.4%.

"Despite the one-time nature of [supply disruptions], we believe the recent price moves foreshadow an overall tighter supply-demand picture against the backdrop of a firming international economic picture," Dahlman Rose & Co said Tuesday in a client letter obtained by the WSJ.

The analysts’ price outlook for the eastern US coal market in 2011 has been upped to an average $72 a short ton from an earlier forecast of $70/t.

The investment bank also increased its 2011 forecast for metallurgical coal by $20 to $230 per tonne, the newspaper said.

According to Reuters, some analysts have noted that one negative factor which could cap the rise on US coal exports is port capacity, which is 130 million short tons – very small compared to the national industry’s annual production of 1.1 billion tons – and is already nearly full.

Floods in the northeast Australian state of Queensland, where most of the country’s steelmaking coal is produced, have essentially brought operations to a halt. Australia was the world’s largest exporter of the coal grade in 2009 at 125 million tonnes; the US was second at 33Mt.

The recent focus on US coal, particularly steelmaking output, has had an impact on a major industry story – the potential takeover of Massey Energy.

Bloomberg quoted Susquehanna Financial Group on Monday as saying that the disrupted coal shipments and possibly continuing rise in steelmaking coal prices had made the Virginia-based company more valuable – potentially exceeding $60 per share.

Susquehanna analyst Stephen Velgot reportedly said that Massey, which focuses much of its efforts in central Appalachia, might receive offers exceeding that mark; however, the takeover price would be capped because the region was more difficult to mine than other locations.

“Nevertheless, given the floods in Australia and the likelihood that met coal pricing could strengthen in the short term, we are comfortable with a potential take-out of Massey around $60 per share versus our previous $55-60 range,”Bloomberg quoted Velgot as saying.

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