Coal prices concern steelmakers
Tight supply of coking coal has Asian, other global steelmakers revising forecasts
By Dave Hannon -- Purchasing, 3/11/2008 3:05:00 PM
Steelmakers the world over are becoming very concerned about the cost and supply of coal.The second-biggest steelmaker in the world, Nippon Steel, last week cut its profit forecast citing the cost of coking coal as one of the primary reasons. Nippon Steel officials said recently that suspension of coal shipments from its major supply source in Australia, is forcing Nippon Steel to turn to the spot market, where prices are about triple those in term contracts. Floods that closed Australian coal mines in mid-2007 set the market for coal in Asia on its head, while more recently storms in parts of China have made it difficult to get coal out of remote regions.
Donald Lindsay, CEO of coal miner Teck Cominco said average prices now are $91/ton, but spot prices have traded as high as $350/ton.
Coal prices were clearly one of the hot topics at the Reuters Global Mining Summit this week. The CEO of Rio Tinto’s energy division says the current record prices for thermal and coking coal will stay high as global demand remains strong and infrastructure struggles to keep up. Preston Chiaro said prices for thermal and coking coal will remain high through 2011 and told Reuters the major question is: “Can infrastructure expand faster than Chinese demand can grow? That's the $65,000 question and nobody can answer it yet."
Chiaro also said Rio is also looking at selling U.S. Powder River Basin coal, traditionally a domestic coal, to Asia. "We've done spot before but now we're looking at sales opportunities of PRB coal, likely shipped from the Northwest or possibly Canada," he said. Purchasing reported last month that steelmakers in Japan were now buying U.S. coal. But in a separate report, the CEO of Arch Coal said the current infrastructure in the U.S. market may limit how much coal it can export to coal-hungry Asian markets.
"As you look at the system, between the ports, railroads and barges, it will take a more active engagement of certainly the bigger companies and more active coordination," said Steven Leer, CEO of Arch Coal, in a recent Reuters report.
In some regions steelmakers are working to set up their own coal supplies.
ArcelorMittal said this week it will bid for state-owned Ukrainian coal mines which are expected to be sold this year to supply energy for its local unit and cut dependency on imports of the fuel.
“We are very interested in acquiring energy assets in Ukraine, like coal mines, to cut dependence on imports,” said Executive Vice President Narendra Chaudhary in a Bloomberg report.
U.S. coal prices have skyrocketed recently, according to the Energy Information Administration’s coal price site. But price data for U.S. metallurgical coal is not available.
Now Playing: 