Tuesday, December 12, 2006

Things go better with coking coal at higher prices

It may be that the dot-commodity boom may be consolidating, or perhaps is a more sinister sign of a top in the super-cycle. Whatever, for the first time in a while prices of some very basic metal commodities are coming down.

Maybe Australian Treasurer Peter Costello was right when he said a short time back that "This is as good as it gets". With Guambat's propensity to hit to left field, Guambat much earlier this year noted that commodity prices cycle from high to low as the industry gets behind and then ahead and then behind again of demand, and quoted a study that prophesied that some of the metals would begin softening in price of 2007, which is just a few sleeps from now (not counting naps).

BHP May Accept 13% Cut to Coking Coal Prices as Supplies Rise by Tan Hwee Ann
BHP Billiton Ltd., the world's largest mining company, may accept a 13 percent cut in hard coking coal prices from April as supplies increase and steelmakers slow the pace of capacity expansion.

Prices of premium coal used to make steel may fall to $100 a metric ton starting April 1 from $115 a ton, according to the median estimate of seven analysts polled by Bloomberg News. Estimates range from $94 to $105 a ton.

BHP and China's Shanxi Coking Coal Group, the largest producers in the two biggest coking coal mining nations of Australia and China, have raised output to meet demand from steelmakers and to benefit from prices that doubled in 2005. Melbourne-based BHP is meeting Japanese steelmakers this week for price talks, Tex said Dec. 6.

The coking coal market is ``softer,'' than the past year, because ``the available supply in China probably developed faster than expected,'' said BHP Billiton's Chief Executive Officer Charles `Chip' Goodyear on Nov. 29.

(Shanxi Liliu Coking Coal Co., Ltd)

Supplies from Australia will increase as port expansions at Newcastle, Gladstone, Dalrymple Bay and Hay Point may add as much as 71 million tons of export capacity a year by the end of 2007, Deutsche Bank AG said in September.

The pace of growth in steelmaking may slow next year, UBS AG said in an Oct. 31 report. Consumption of steel may rise 5 percent to 1.179 billion metric tons globally next year, slower than the forecast 9 percent gain this year, the International Iron and Steel Institute said in October.

"It's still a good result" at $100 a ton, Mark Pervan, head of research at Daiwa Securities SMBC, said in Melbourne. "That's much higher than historical levels."

Coking coal prices jumped to $125 a ton in 2005, compared with $57.50 a ton in 2005, and $46.50 a ton in 2004, according to Goldman Sachs JBWere Pty.

But the miners have a different spin on it than those droll Bloomberg reporters.

Coking coal prices stabilising at higher levels
The price of metallurgical coal is showing all the signs of stabilising at higher levels.

As with energy coal, metallurgical coal, used in steelmaking, also seems quite reluctant to return to 2004 levels.

The exhaustive number crunching of Satori Merchants and former Iscor coking-coal marketing manager Leon Hendrikz tells a similar story of metallurgical coal prices remaining stronger for longer.

Hendrikz expects global exported coking coal supply to grow from 170-million tons in 2005 to 355-million tons by 2025. The shortage experienced during 2004/5 has sparked serious exploration and development projects to meet the growing demand for coking coal in the future. Major growth in supply is expected from Australia and exported coking coal from this country should reach levels of 240-million tons a year by 2025. In order to meet the growing demand, growth in supply will continue beyond 2025 and should reach global levels of about 560-million tons a year by 2044.

He concurs overwhelmingly with the forecast of Citigroup global commodity analyst Alan Heap, who says that the global supply and demand balance for coking coal is expected to see supply steadily rise to a peak in 2008 and fall back to a small surplus in 2009, though he sees pricing easing to $100/t next year.

The undersupply of coking coal experienced in 2004/5 has been reduced by increases in production from existing operations. Several new mining projects are in development and most of these will start production in 2009 to 2010. It is thus foreseen that a slight over-supply of two-million tons a year will exist in 2009. Demand will catch up with supply by 2010 and an under supply of around three-million tons a year will exist. As the new projects reach their design capacities, the undersupply will diminish and the market should essentially be in balance by 2015, Hendrikz forecasts.

Strong demand for ore by Tony Grant-Taylor
THE iron ore market remains strong as the annual price haggling season gets under way but demand for coking coal is somewhat softer, according to BHP Billiton chief executive Chip Goodyear.
With negotiations to set the price for both commodities starting on April 1 – the beginning of the Japanese financial year – Mr Goodyear said spot market prices for iron ore into China were above contract rates, physical demand was strong and BHP Billiton was receiving strong inquiries for any surplus production it might have.

With the price negotiations usually taking some months, Mr Goodyear wasn't prepared to speculate on the outcome.

But analysts are expecting a rise of 5-10 per cent or more in iron ore prices for the 12 months from April – which augurs well for BHP despite Chinese steel mills being upset at having to accept a 2006 rise of 19 per cent on the back of a 71 per cent rise the year before.

Earlier, chairman Don Argus told shareholders the company was in great financial shape and commodity supplies were expected to remain tight.

"The likely outcome of these circumstances is an extended period of high cyclical prices for the commodities that BHP Billiton produces," he said.
So, On yer bikes, then

Just as a matter of tangential interest, Guambat came across this story of WILLIAM T. HOGAN, S.J. -- FORDHAM’S STEEL PRIEST.


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