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Citigroup said it was now anticipating a 13% rise in 2008 thermal coal contracts and 10% for coking coal.
Citigroup’s call follows last week's positive forecast from Goldman Sachs JBWere, backing itself with no evidence of any slowdown in demand from India for coking coal and no quick fix to the logistical bottlenecks afflicting suppliers.
“We expect continued tight market conditions in the thermal coal market driven by the momentous reversal of China’s role from a net exporter to a net importer. Coal-fired generating capacity in China is growing at 12–15 percent per year, but the quality of Chinese domestic supply is declining, necessitating import for blending, and Chinese production is being constrained by government measures,” Citigroup said.
The analysts also cited looming price indicators between Chinese shippers and Japanese utilities of $US68 per tonne, implying a $US5/t increase on Newcastle prices.
On metallurgical coal, Citigroup said it expected a $US20/t increase over two years, with the majority of that now expected in 2008-09.
The positive outlook for bulks prompted Citigroup to upgrade its call on heavyweights BHP Billiton and Rio Tinto. In its coal stocks, Resource Pacific was the only company to reach Buy status.
