Gulf News reported that oil has stolen the headlines in hitting the USD 100 per barrel level. But anyone looking for record prices should turn instead to another energy commodity thermal coal.
Though often overlooked by investors in favor of oil and natural gas, thermal coal is one of the most important commodities for the global economy. It fires power stations around the world and is still the main source of electricity in Asia.
As miners and Asian utilities gather for secretive annual talks this month, traders are betting that the next annual coal supply contracts, which run from April will see record prices agreed well above the peak of USD 125 per tonne set in 2008 ton 2009.
The most bullish coal traders and analysts believe the 2011 to 2012 contracts will be settled as high as USD 145 per tonne. More conservative traders put the contracts at about USD 130 per tonne in any case well above the 2010 to 2011 settlement of USD 98 per tonne.
The sharp jump in prices comes amid disruption to supplies in key exporting countries such as Australia and Colombia due to heavy rains. That disruption has coincided with a rebound in global demand. Spot, or physical, prices shot up to USD 140 per tonne in early January although they have fallen back since then to about USD 125.
Mr Hayden Atkins analyst at Macquarie in London said that the miners have the upper hand over the utilities in the next round of annual contracts negotiations. Indeed, the expectation of record highs bodes well for the world’s big producers: Bumi of Indonesia, London listed Xstrata, Anglo American and Rio Tinto and Jakarta-listed Adaro. It is positive, too, for Glencore, the largest commodities trader.
Although the thermal coal market moved to spot trading in the early 2000s, large miners such as Xstrata and Bumi maintain annual contracts with fixed prices with utilities in countries including Japan, South Korea and Taiwan. Traders say that annual contracts set the price directly or indirectly for about a third of the seaborne thermal coal market of 730 million tonnes. They also set the tone for the spot market.
Coal prices have been quietly trending higher since the 2009 to 2010 annual contracts were set at USD 71 per tonne. But, more recently, the flooding in Australia’s coal rich state of Queensland has given the market a powerful shot in the arm. Output has been low in Indonesia, South Africa and Colombia, too because of heavy rains.
(Sourced from Gulf News)