Coal prices are only creeping up
By Tom Stundza -- Purchasing, 2/28/2007 5:14:00 PM
Coal prices are starting to rise again after winter's cold weather finally has hit large portions of the U.S. Still, coal prices are the lowest since 2004. Central Appalachian coal is currently $40.50 per ton, which is up 3.2% from last month—even as it remains down 28% from last year.
Bearish on any immediate price explosion, though, Merrill Lynch analyst David Lipschitz reckons that “2007 coal prices will remain weak for the first half of the year before recovering during the summer.” Analyst Ann Kohler at Caris & Co. writes that domestic coal-demand growth will accelerate due to the start-up of new coal-fired electric generating plants, increased utilization of existing coal-fired plants, and the start-up of such British thermal unit conversions as coal-to-liquids and coal-to-gas technologies. “But, in the near-term, burgeoning coal inventories at electric utilities, increased coal-production levels and continuing warmish winter weather will weigh on coal prices,” she writes.
Meanwhile, credit ratings agency Standard & Poor's projects that coal prices are likely to rise over the next five years, especially for coal mined in the Central Appalachian region, where costs are high and operating conditions difficult.
There is underlying strong fundamental global demand for coal for power plants and steel mills, says Standard & Poor's credit analyst Thomas Watters, much of which can be attributed to the fast-growing Chinese and Indian economies which should continue for several years. Other analysts agree, and add that economic growth will spur added coal demand in Russia and Brazil as well. "We believe the average price curves for the next five years should be meaningfully higher than they were for the five years ended 2004,” writes Watters.
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