Pacific rains rally coal prices, but limited upside

Pacific rains rally coal prices, but limited upside
31 Jan 2012 17:12 GMT
London, 31 January (Argus) — Supply-side factors have dictated coal prices over the past fortnight, UK bank Standard Chartered said today, but it sees limited upside going forward.

Wet weather in Australia has tightened Newcastle supply and the onset of the monsoon in Indonesia has added to supply-side fears in the Pacific. Heavy rainfall and flooding on the east coast of Australia is forecast over the next few weeks. This could further affect production and drive up Newcastle coal prices, Standard Chartered said. The bank also expects Chinese buying and enquiries to resume after the lunar new year holidays.

China overtook Japan as the world’s largest coal importer in 2011 with 182.4mn t of coal compared with Japan’s 175.2mn t, driven by Chinese demand, sluggish Japanese steel production and the loss of Japanese coal-fired power after the earthquake. Standard Chartered forecasts 126.5mn t of Chinese thermal coal imports this year against 120mn t for Japan, but the largest importer will depend on coking coal imports.

But despite the resumption of Chinese buying, Standard Chartered remains cautious. “Buyers are hesitant to commit to purchasing cargoes on a longer-term basis, given uncertain market sentiment,” Standard Chartered said, which should cap coal prices in the near term. The bank forecasts 2012 API2 prices at $112/t, with API4 prices at $107/t and Newcastle at $116/t. In the near term, it sees an API2 price of $110/t for the first quarter of 2012 and $111/t for the second quarter next year, against API4 prices of $104/t and $106/t over the same period.

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