International coking coal prices soar

Investment bank Macquarie expects a shortage of coal for steelmaking to last several years.

In a research report, Macquarie says hard coking coal prices have risen to an average of $US285-$US300 ($NZ360-$NZ380) a tonne for Australian and Canadian producers who have recently settled deals with Japanese steel mills.

That is a trebling of price from 2007's $US96-$US98 a tonne.

New Zealand's new listed coal company, Pike River Coal, is a beneficiary of rising coal prices with its share price climbing in the last month to 143 cents.

It issued shares in October at 100c each, and shares in a rights issue were sold at 90 cents each in January.

Pike River's shares yesterday closed up 6c at 143c.

The company's underground coal mine high in the Paparoa Range and beneath conservation land 46km north of Greymouth on the West Coast expects to start production in July and to export 200,000 tonnes in the year to June 2009.

It will increase to full production in the following year, it says.

Australia is the world's largest coal exporter and its prices set the benchmark for other producers.

"There are now signs that Chinese steel mills will be facing desperate shortages of met (metallurgical) coal in the coming years, and look set to meet previous expectations of strong import growth," Macquarie says in a report dated April 25.

"However, the delays in new capacity, combined with disastrous floods in Queensland earlier this year (which look set to cost at least 15 million tonnes of lost supply in 2008), appear to have created a structural shortage of met coal that could now last for several years. "

Pike River chief executive Gordon Ward said yesterday his company expected to get close to $US300 a tonne for its premium coking coal and close to $US295 a tonne for its hard coking coal. Negotiations were just starting with some Japanese steel mills, he said.

They would be followed by negotiations with its two Indian shareholders, who have contracted to buy 55 per cent of the mine's coal.

John Kidd, of brokers McDouall Stuart, which organised Pike River's share issue last year, said the combination of capacity problems at Australia's east coast ports and on its railways and the disastrous flood in Queensland early this year shorting coal supplies, along with the increasing demand from China, had caused the skyrocketing prices.

Australia's rail and port capacity problems would take some time to address.

Kidd said the Queensland Government had announced $A5.4 billion in capital spending to improve the rail network .

The 15 million tonnes of lost coal supply was only about 6 per cent of world traded met coal, and 10 per cent of Australia's export met coal, but its impact on price was much greater, which showed how tight supply was.

Australian producers were being more than compensated in price for the drop in export volumes, Kidd said.

China used to be a net exporter of coal, but its own demand was increasing so considerably it was now a net importer.

Kidd said some commentators were calling it the perfect storm, creating ideal conditions for a jump in international coal prices.

Kidd said analysts were now rejigging their long-term price forecasts for coal.

The long-term price is what the price is expected to fall back to in about four or five years.

Only three months ago, their long-term forecasts were $US75 a tonne, but had risen to $US125 a tonne.