Reuters - 5 Feb 08

Prof. Robert B. Laughlin
Department of Physics
Stanford University, Stanford, CA 94305
(Copied 30 Dec 08)

Goldman, Citigroup raise coal price forecasts

Tue Feb 5, 2008 12:01am EST
By Fayen Wong

SYDNEY, Feb 5 (Reuters) - Citigroup and Goldman Sachs raised their forecasts for prices of coal used in power plants and steel mills in 2008, citing extreme tightness as global supply growth struggles to keep up with strong Asian demand.

Goldman Sachs raised its contract price forecast for thermal coal to $110 a tonne, a 98 percent increase from last year's agreed price of $55.65 and up 22 percent from its earlier prediction of $90.

Citigroup said Japanese utilities such as Tokyo Electric Power Co (9501.T) and Chubu Electric Power Co (9502.T) may need to pay Australian miners $100 a tonne for coal contracts in fiscal 2008 beginning in April.

Both banks have forecast that coking coal, used to make steel, will be $200 a tonne in 2008, up 104 percent from the agreed price of $98 last year.

"Spot thermal coal prices have soared in the past few weeks in response to severe coal production and transportation constraints in Australia, China and South Africa at a time when power utilities are holding critically low inventories of coal," Goldman Sachs JBWere's resource analyst Malcolm Southwood said in a research report on Tuesday.

"We believe that the factors that have driven thermal coal prices higher in recent weeks will have a profound impact on 2008/09 contract negotiations."

Spot prices for thermal coal, used for power generation, have already shot up 37 percent so far this year to trade at $130 a tonne last week, boosted by a series of supply disruptions that happened within days of each other.


China, the world's largest producer and consumer of coal, said on Jan. 25 it would halt exports in February and March after the nation's worse snowstorms in 50 years disrupted output and caused unprecedented power shortages across the country.

News of China's supply halt was immediately followed by severe power shortages in South Africa, which forced miners to shut their mines.

Adding to a worsening global crunch, several Australian producers last month declared force majeure on immediate coal shipments due to recent heavy rain and floods in the key mining state of Queensland.

Citigroup's Alan Heap said strong demand from India, which will depend on coal-fired power generation to power its economic growth, will also soak up supplies from Indonesia.

"Our analysis points to a continued tightness in seaborne thermal markets extending to 2010," Heap said in a research report issued on Tuesday.

Australia is the world's largest exporter of coal, exporting 257 million tonnes last year, mostly from mines operated by Xstrata Plc (XTA.L, BHP Billiton Ltd (BHP.AX) and Rio Tinto Ltd (RIO.AX).

Recent floods in Australia's central Queensland have also forced BHP Billiton Mitsubishi Alliance (BMA), among other miners, to say they may miss deliveries.

BMA, the world's largest coking coal exporter, said last month that its coal operations might be affected for up to six months.

The series of force majeures from Australian producers have caused spot prices of metallurgical coal to jump to about $211 a tonne, compared with about $100 a month earlier, Goldman's Southwood said.

Updated forecasts for '08 Asia thermal coal contract price:

Goldman Sachs JB Were $110
Citigroup $100
UBS $100
JP Morgan $90
Macquarie $88
Merrill Lynch $80
National Australia Bank $78
(Editing by Ramthan Hussain)