PCI coal prices gather steam

PRICES for low volatile pulverised coal injection coal (PCI) have exceeded market expectations by settling 20% higher at $US170-180 a tonne, or double the price paid last year.
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Lou Caruana

The latest price for PCI, which can be used as a substitute for coking coal in steelmakers’ blast furnaces and normally trades at a discount to coking coal, is believed to be locked in by BHP Billiton on a quarterly basis. BHP Billiton also recently settled on a quarterly coking coal price of $200/t.

BHP Billiton produces PCI from its South Walker Creek coal mine in the Bowen Basin, while fellow Queensland miner Macarthur is a major exporter of PCI coal.

While quarterly pricing will be good for both coal producers in times of booming demand, it can also mean more immediate pain should the tables turn, Mine Life senior resources analyst Gavin Wendt said.

“It will work in the coal producers’ favour now but obviously it will work against them in the future, but bear in mind also it won’t hurt the bigger players as much as it will hurt the smaller players,” Wendt said.

The bigger coal producers had a much lower overall cost base than a lot of the small to mid-cap players.

Companies with heavy debt loads and recently established new projects were seen as the most at risk in the case of a quick drop-off in quarterly commodity pricing.

“So if we see a situation where prices turn around and begin to fall, those smaller companies that may not be able to cope with a lower price environment will be the ones that may well fall by the wayside.”