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Hi roland, thanks for the article. Looks as if coal miners are going to need the Aussie$ quite a bit lower, against the US$, if prices tank with the oil price.
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From the GlobalCoal reports it seems that markets are looking set for lower prices in the power-station coal market, as India is reported to be searching for coal bargains.
Some companies in Australia have prices set from January 1st 2009 and prices agreed will be interesting.
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Power-station thermal coal out of the Port of Newcastle fell $6.50 to US$97.52 a tonne, as of Friday 14th November. Well below the benchmark price set on 1st April of US$125 per tonne.
Europe, out of Amsterdam, fell $9.85 to US$94.65 and US prices tanked $11.15 to US$94.50 a tonne.
Exchange rate was AU$0.93 to US$1 on 1st April 08 = (US$125 per tonne) AU$134 per tonne.
Exchange rate was AU$0.65 to US$1 on 14th Nov 08 = (US$97.52 per tonne) AU$150 per tonne.
Europe, out of Amsterdam, fell $9.85 to US$94.65 and US prices tanked $11.15 to US$94.50 a tonne.
Exchange rate was AU$0.93 to US$1 on 1st April 08 = (US$125 per tonne) AU$134 per tonne.
Exchange rate was AU$0.65 to US$1 on 14th Nov 08 = (US$97.52 per tonne) AU$150 per tonne.
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Coal and iron ore suppliers are having to take great care to make sure that a letter of credit is in place before shipping.
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Coal stocks, and I refer to those mining purely in Australia and selling in or shipping out.
About 3 months ago it was purely a case of getting the coal out of the ground and trying to ship it out for top dollar.
Now, it's making sure who you send it to is able to pay up or honour prices agreed to 31st March 2009.
So, it's a case of looking at whether a company will be able to sell its coal and the quality of the company, and indeed, the country it's being sent to.
Iron ore prices have tanked seriously badly and coking coal and PCI coal may dive in price the same way. Even the weak Aussie will not be enough.
Thermal coal will be affected less but PCI coal could be sold by some as thermal. Thus squeezing companies with only thermal coal that is not of good quality, benchmark or better.
On prices, there are guesses all over the place for 2009. Worst case so far is for thermal at US$70 per tonne against US$125 in 2008. So, with the Aussie around AU$1.50 to the US$1 the fall is not that bad.
Semi-soft coke at around US$240 per tonne looks the most vulnerable, and what of semi-hard and hard coking?
Some coal companies have crashed badly and rightly so. Amongst them are more solid companies with clients having a stake in their mines with long term agreements to purchase coal at market prices. These are safer and now look cheap.
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A handful of coal producers remain at very low levels despite good yields, low PE's and earning yields. Each have their problems and good points, one debt, three development of mines, and one a possible problem coal mix. Despite this I have taken the risk and added more stock, not a lot, but just a bit more.
Well, my own views on coal prices is more negative on thermal coal than Macquarie Bank, but maybe their estimate is better than my guesses. They forecast a thermal coal fix for April 09 at US$100 (earlier forecast US$170) per tonne against US$125 at present. Their forecast is for coking coal at US$140 (earlier forecast US$350 per tonne) per tonne against US$300, quite a fall.
Factoring in the Aussie Dollar fall helps a lot.
Well, my own views on coal prices is more negative on thermal coal than Macquarie Bank, but maybe their estimate is better than my guesses. They forecast a thermal coal fix for April 09 at US$100 (earlier forecast US$170) per tonne against US$125 at present. Their forecast is for coking coal at US$140 (earlier forecast US$350 per tonne) per tonne against US$300, quite a fall.
Factoring in the Aussie Dollar fall helps a lot.
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Thermal coal out of the Newcastle Port (spot for delivery in 3 months) fell heavily to end the week at US$85.69 per tonne, down $10.83.
Thermal out of Europe was at US$85.78 per tonne, down $8.87 and the States at US$79.60 per tonne, down $14.90.
Thermal out of Europe was at US$85.78 per tonne, down $8.87 and the States at US$79.60 per tonne, down $14.90.
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I still think Macquarie is over optimistic on thermal coal, but who knows they could be right. Finished buying coal stocks on Friday having reached my limit. Will sit it out now.
Is the coal sector cheap or is it expensive?
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So far Maquarie are once again behind events in their forecasts on thermal coal prices.
Newcastle Port thermal coal fell to US$78.19 a tonne, down a further US$7.50.
Thermal coal price fix on 1st April 2008 was US$125 per tonne and high was US$194 per tonne.
Some guesses see thermal coal fix in 2009 at US$70 per tonne and semi-soft coke down from US$240 per tonne to US$110 per tonne.
The tanking Aussie Dollar will help but an exchange rate of AU$1.70 to US$1.00 is needed if coal prices continue down.
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Having tracked a number of coal vessels due to ETA in December at the Gladstone Port. I notice many suddenly disappear from the shipping list, indicating either cancellations or clients requesting later deliveries.
Spot prices continue to tank inline with the oil price tumble, Brent crude at US$48 a barrel to day, and no sign yet of a bottom in thermal coal prices.
Biggest worry is PCI coal where Macarthur Coal indicated they were prepared to sell this as quality thermal. Semi-soft coke is mainly on 12 month deliveries and is expected to tank badly.
Not forgetting the Aussie fall from AU$1.05 to AU$1.56 to the US$1 that will help a great deal next year, when companies present currency deals end.
Spot prices continue to tank inline with the oil price tumble, Brent crude at US$48 a barrel to day, and no sign yet of a bottom in thermal coal prices.
Biggest worry is PCI coal where Macarthur Coal indicated they were prepared to sell this as quality thermal. Semi-soft coke is mainly on 12 month deliveries and is expected to tank badly.
Not forgetting the Aussie fall from AU$1.05 to AU$1.56 to the US$1 that will help a great deal next year, when companies present currency deals end.
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NBSP US coal price for spot thermal, 3 months delivery, was at US$78.10 per tonne, down US$1.50 on 29/11/08.
ARA - Europe coal price for spot thermal, 3 months delivery, fell sharply to US$70.50 per tonne, down $15.28 on 20/11/08.
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NBSP US coal price for spot thermal, 3 months delivery, was at US$78.10 per tonne, down US$1.50 on 29/11/08.
ARA - Europe coal price for spot thermal, 3 months delivery, fell sharply to US$70.50 per tonne, down $15.28 on 29/11/08.
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Some probably think coalminers are at a rock and a coalface at the moment. Probably due to the sudden turn-a-round and having to get bank letters to be certain clients can pay or being put in the dilemma of accepting delays.
Companies need to have loads of cash and be careful about costs on development and exploration. Must be a producer with good clients preferably with stakes in the mines.
Coal is dropping in price like a stone and thermal may drop 50% (US$62.50 per tonne), with PCI down 55% (US$81) and semi-soft coke coming down 60% (US$96), imho.
AU$1.05 fall to AU$1.56 to the US$1.00 helps to some extent.
Companies need to have loads of cash and be careful about costs on development and exploration. Must be a producer with good clients preferably with stakes in the mines.
Coal is dropping in price like a stone and thermal may drop 50% (US$62.50 per tonne), with PCI down 55% (US$81) and semi-soft coke coming down 60% (US$96), imho.
AU$1.05 fall to AU$1.56 to the US$1.00 helps to some extent.
December 05, 2008
Australian Analysts Accept The Bear Fact That The Coal Price Is Coming Down
By Richard Roberts of Highgrade.net
Source: www.minesite.com
A couple of weeks ago veteran Australian coal analyst Dr Don Barnett nearly choked on his cornflakes when he saw Macquarie Bank had chopped its coking coal price forecast for 2009 by close to 60 per cent. With Merrill Lynch having now added its name to the doomsayers list, Dr Barnett now concedes his reaction to the Macquarie “overreaction” may have been a bit hasty: the managing director of Sydney-based Minec said at a mining conference in the harbour city around a fortnight ago that Macquarie’s expectation that the US$365 per tonne contract price for hard coking coal won by US producers a few months ago would plummet to US$140 per tonne in 2009 was over the top.
“Not everybody expects substantial discounts,” he said at the time. “I’m certainly not forecasting $US140 per tonne coking coal. I’m taking a punt on ... between $US250 to US$280 per tonne ... it doesn’t really matter if the Australian dollar stays around where it is now, it’s a hell of a lot of money. They’re record prices in Australian dollar terms.”
But Merrill Lynch analyst Vicky Binns said in a research note released last week that steel mill closures and production cuts in Asia and elsewhere were causing metallurgical coal demand to “disintegrate”, and she flagged a reduction of up to 58 per cent in contract hard coking coal prices next year. Semi-hard coking coal prices could drop by 52 per cent to around US$115 per tonne. “Cumulative crude steel production cuts in 2008Q4 sum to 44 million tonnes, 33 million tonnes alone from blast furnace closures,” Binns said. “Annualising 2008Q4 steel output, year-on-year steel production in 2009 would be down 10-15 per cent versus 2008. According to IISI (World Steel Association), October’s global steel output alone was [down] 12.4% year-on-year, with every region declining: US & China down 17 per cent; CIS down 33 per cent. If we annualise forecast Dec-08 crude steel production, 2009 output is down 20 per cent year-on-year. This is NOT our base case for 2009. However, it does appear likely global steel production will be at least five per cent lower vs 2008. Our forecast China’s crude steel production in 2008 is 490 million tones, (flat year-on-year) and 470 milliont tones in 2009.”
Binns said the bad news on steel output could keep coming. “Look for more announcements relating to steel capacity closures in 2009Q1,” she said. “Over the last three weeks, there have been dramatic changes in the demand outlook for met coal. Coke prices collapsing by 50% for both China’s and export supply; customers have sought to delay or defer shipments of even premium hard coking coal; several Indian mills even hoped to re-negotiate FY09 prices for outstanding tonnage - very unlikely, in our view; or some mills simply not sending ships or answering calls. We expect an extension of a substantial percentage of 2008Q4 global steel cuts into 2009Q1, and therefore we look to much greater demand destruction for met coal than has been evident to date. “While we believe it is too early to accurately forecast coking coal prices, given the enormous volatility in steel production rates (settlement could be as late as May-09), it is clear the negative news is vastly out-weighing positive. Not only is demand growth being hit by the collapse in steel production, but coal export flows remain strong (particularly from Australia, the US). The seaborne supply-demand balance, even for hard coking coal, appears to be moving into surplus.”
And so Dr Barnett told HighGrade the rapid changes in the market had certainly altered his take on proceedings, although predictions of a 50-60 per cent price cut for hard coking coal in 2009 still looked overdone. “I think it’s still probably a bit of an overreaction, but I’d be less adamant than I was a couple of weeks ago ... because the information just gets gloomier as we go on,” he said. “It’s a difficult thing to argue at the moment because there is a hell of a gap between the current prices, or even US$140 per tonne, and the cost of [most] supply. There’s still a substantial cushion at a low US dollar exchange rate for the Australian producers. So it’s not like the traditional case where you said, well there’s the 90th percentile of supply [cost] and that’s where the price will be. These prices are still above that ... at a A65-70c/US dollar exchange rate.”
Binns said Australia supplied about 55% of the world’s seaborne met coal. “This lower Australian dollar does impact the cost of production,” she said. “We estimate the average cost of met coal production from Australia to port is about A$70 to A$75 per tonne, which at spot A$/U$ 0.65 is US$45-50 per tonne. A price of US$125 per tonne for hard coking coal would return a cash margin for those average producers of about 55-60 per cent. We estimate cash production costs have continued to rise over the last few years and we believe the average cost of Canadian production FOB is about US$100 per tonne, and for US production [more than] US$110 per tonne FOB US east coast. US exports are up 37 per cent in 2008, as those producers ‘make hay while the sun shines’ with higher prices. We expect some cuts in production from US producers if prices correct to our forecast levels. We find it difficult to believe that there would be any substantial cuts to Australian met coal production in the near-term. We believe it is more likely that any production and export cuts will come from the higher cost US and Canadian producers.”
However, “deferred shipments are now a reality” for Australia’s coal producers, Binns said, mirroring the situation on the country’s west coast with iron ore. According to Barnett, Queensland’s new “super coal royalty” added to the cost pressures on the state’s coking coal exporters. “If you go back to the US$300 per tonne level, the Queensland royalty is a very significant cost item,” he said. “At say A80c [to the US dollar] – roughly the average for 2008 – it’s a big swag of money ... a bit over A$30 per tonne for the hard coking coal people. So when you come down to a lower price you do get a drop-off in that royalty of A$15 to A$19 per tonne. But the cost element has been increasing. If you come down to US$125 per tonne and the Australian dollar is in the higher 60s [USc], there’s not a lot of cushion then between the higher cost mines and the Australian dollar price. So it is starting to get a bit tight.” And his thoughts now on the contract hard coking coal prices next year? “I still think we’ll be on the upside of US$140 pertonne, but perhaps not substantially on the upside,” Barnett said, after a long deliberation.
[This article is a slightly modified version of the original, which appeared on Highgrade.net on 1st December]
Australian Analysts Accept The Bear Fact That The Coal Price Is Coming Down
By Richard Roberts of Highgrade.net
Source: www.minesite.com
A couple of weeks ago veteran Australian coal analyst Dr Don Barnett nearly choked on his cornflakes when he saw Macquarie Bank had chopped its coking coal price forecast for 2009 by close to 60 per cent. With Merrill Lynch having now added its name to the doomsayers list, Dr Barnett now concedes his reaction to the Macquarie “overreaction” may have been a bit hasty: the managing director of Sydney-based Minec said at a mining conference in the harbour city around a fortnight ago that Macquarie’s expectation that the US$365 per tonne contract price for hard coking coal won by US producers a few months ago would plummet to US$140 per tonne in 2009 was over the top.
“Not everybody expects substantial discounts,” he said at the time. “I’m certainly not forecasting $US140 per tonne coking coal. I’m taking a punt on ... between $US250 to US$280 per tonne ... it doesn’t really matter if the Australian dollar stays around where it is now, it’s a hell of a lot of money. They’re record prices in Australian dollar terms.”
But Merrill Lynch analyst Vicky Binns said in a research note released last week that steel mill closures and production cuts in Asia and elsewhere were causing metallurgical coal demand to “disintegrate”, and she flagged a reduction of up to 58 per cent in contract hard coking coal prices next year. Semi-hard coking coal prices could drop by 52 per cent to around US$115 per tonne. “Cumulative crude steel production cuts in 2008Q4 sum to 44 million tonnes, 33 million tonnes alone from blast furnace closures,” Binns said. “Annualising 2008Q4 steel output, year-on-year steel production in 2009 would be down 10-15 per cent versus 2008. According to IISI (World Steel Association), October’s global steel output alone was [down] 12.4% year-on-year, with every region declining: US & China down 17 per cent; CIS down 33 per cent. If we annualise forecast Dec-08 crude steel production, 2009 output is down 20 per cent year-on-year. This is NOT our base case for 2009. However, it does appear likely global steel production will be at least five per cent lower vs 2008. Our forecast China’s crude steel production in 2008 is 490 million tones, (flat year-on-year) and 470 milliont tones in 2009.”
Binns said the bad news on steel output could keep coming. “Look for more announcements relating to steel capacity closures in 2009Q1,” she said. “Over the last three weeks, there have been dramatic changes in the demand outlook for met coal. Coke prices collapsing by 50% for both China’s and export supply; customers have sought to delay or defer shipments of even premium hard coking coal; several Indian mills even hoped to re-negotiate FY09 prices for outstanding tonnage - very unlikely, in our view; or some mills simply not sending ships or answering calls. We expect an extension of a substantial percentage of 2008Q4 global steel cuts into 2009Q1, and therefore we look to much greater demand destruction for met coal than has been evident to date. “While we believe it is too early to accurately forecast coking coal prices, given the enormous volatility in steel production rates (settlement could be as late as May-09), it is clear the negative news is vastly out-weighing positive. Not only is demand growth being hit by the collapse in steel production, but coal export flows remain strong (particularly from Australia, the US). The seaborne supply-demand balance, even for hard coking coal, appears to be moving into surplus.”
And so Dr Barnett told HighGrade the rapid changes in the market had certainly altered his take on proceedings, although predictions of a 50-60 per cent price cut for hard coking coal in 2009 still looked overdone. “I think it’s still probably a bit of an overreaction, but I’d be less adamant than I was a couple of weeks ago ... because the information just gets gloomier as we go on,” he said. “It’s a difficult thing to argue at the moment because there is a hell of a gap between the current prices, or even US$140 per tonne, and the cost of [most] supply. There’s still a substantial cushion at a low US dollar exchange rate for the Australian producers. So it’s not like the traditional case where you said, well there’s the 90th percentile of supply [cost] and that’s where the price will be. These prices are still above that ... at a A65-70c/US dollar exchange rate.”
Binns said Australia supplied about 55% of the world’s seaborne met coal. “This lower Australian dollar does impact the cost of production,” she said. “We estimate the average cost of met coal production from Australia to port is about A$70 to A$75 per tonne, which at spot A$/U$ 0.65 is US$45-50 per tonne. A price of US$125 per tonne for hard coking coal would return a cash margin for those average producers of about 55-60 per cent. We estimate cash production costs have continued to rise over the last few years and we believe the average cost of Canadian production FOB is about US$100 per tonne, and for US production [more than] US$110 per tonne FOB US east coast. US exports are up 37 per cent in 2008, as those producers ‘make hay while the sun shines’ with higher prices. We expect some cuts in production from US producers if prices correct to our forecast levels. We find it difficult to believe that there would be any substantial cuts to Australian met coal production in the near-term. We believe it is more likely that any production and export cuts will come from the higher cost US and Canadian producers.”
However, “deferred shipments are now a reality” for Australia’s coal producers, Binns said, mirroring the situation on the country’s west coast with iron ore. According to Barnett, Queensland’s new “super coal royalty” added to the cost pressures on the state’s coking coal exporters. “If you go back to the US$300 per tonne level, the Queensland royalty is a very significant cost item,” he said. “At say A80c [to the US dollar] – roughly the average for 2008 – it’s a big swag of money ... a bit over A$30 per tonne for the hard coking coal people. So when you come down to a lower price you do get a drop-off in that royalty of A$15 to A$19 per tonne. But the cost element has been increasing. If you come down to US$125 per tonne and the Australian dollar is in the higher 60s [USc], there’s not a lot of cushion then between the higher cost mines and the Australian dollar price. So it is starting to get a bit tight.” And his thoughts now on the contract hard coking coal prices next year? “I still think we’ll be on the upside of US$140 pertonne, but perhaps not substantially on the upside,” Barnett said, after a long deliberation.
[This article is a slightly modified version of the original, which appeared on Highgrade.net on 1st December]
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Thermal benchmark coal out of Newcastle for 5th Dec, spot for 3 months delivery, fell $2.10 to US$76.09 per tonne.
US fell $2.90 to US$75.20; and Europe to US$76.50 up $6.00. Some European dumping of thermal caused the set back last week.
US fell $2.90 to US$75.20; and Europe to US$76.50 up $6.00. Some European dumping of thermal caused the set back last week.
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Thermal benchmark coal out of Newcastle for 5th Dec, spot for 3 months delivery, fell $2.10 to US$76.09 per tonne.
US fell $2.90 to US$75.20; and Europe to US$76.50 up $6.00. Some European dumping of thermal caused the setback last week.
US fell $2.90 to US$75.20; and Europe to US$76.50 up $6.00. Some European dumping of thermal caused the setback last week.
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Merril Lynch have upgraded Felix Resources to outperform, downgraded Centennial Coal to neutral, Macarthur Coal to underperform and Gloucester Coal to underperform.
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Slightly better this week, at least the downward trend has stopped, for a moment anyway.
Newcastle thermal rose a tad, just US$2.10 at US$78.25 per tonne. US fell away US$1.02 at US$74.18 per tonne and Europe managed a 61c hop to US$77.11 a tonne.
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Another week and thermal coal prices continue their uncertain path despite Xstrata tieing up an US$80 per tonne agreement for thermal coal out of Australia for 2009.
Thermal coal prices, spot, out of Newcastle for 3 months delivery, fell 44 cents to US$77.81 a tonne.
In Europe, down 11 cents to US$77.00 a tonne and the States, up $6.15 at US$80.33 - the latter somewhat bucking the trend.