Thermal coal prices to keep rising - Barron's
3rd January 2011
NEW YORK - Prices for thermal coal, which is used for power generation, have risen sharply in the past month, making the commodity more attractive to investors than oil or natural gas, Barron's said on Sunday.
"A perfect storm of severe weather affecting both supply and demand has driven benchmark prices of thermal coal in Europe, South Africa and the Asia-Pacific region up by around 10%," the business weekly reported.
"Infrastructure bottlenecks mean it will take time for market tightness to ease, even after the weather returns to normal, making thermal coal a better near-term play than crude oil or natural gas."
"We see little respite from higher prices in the coal market in the short term," Barron's quoted analysts at Barclays Capital as saying.
Thermal coal prices were on a slow burn for much of 2010, as investors favored commodities linked more closely to the global economic recovery, such as metallurgical coal, which is used in steelmaking.
Thermal coal is burned mostly by power stations to produce electricity, and demand traditionally spikes in the Northern Hemisphere during winter, the weekly said.
This year, freezing temperatures have come early in much of Europe and China, with snow and ice disrupting air and ground travel in Europe, and coal shortages prompting power rationing in several Chinese provinces.
Australian coal at the port of Newcastle, an Asian benchmark, was assessed on December 24 at $124,75/t by London broker globalCoal. That is the highest level since late 2008, and compares with prices below $100/t as recently as October 22, Barron's said.
Benchmark prices in other regions also are rising quickly. Thermal coal out of Richards Bay, South Africa, which supplies both Europe and Asia, is up 13% to $121,23/t since December 3.
Bank of America-Merrill Lynch thinks the rally has only started, and forecasts prices of all coal grades "to move higher from the current levels in 2011," the bank said in a report last month. It predicts the Newcastle thermal coal price will average $107/t, up from $91 in 2010