Wesfarmers settled a March quarter price of $US221 a tonne for hard coking coal from its Curragh mine, while spot prices for the commodity have been as high as $US295/t free-on-board, according to recent news reports.
Wood Mackenzie believes the price might reach $US400-500/t on the back of the flooding in Queensland.
But Macquarie is taking a more conservative approach.
The broker forecast the state to lose 10 million tonnes of metallurgical coal exports this quarter, while Goldman Sachs and industry researcher IBISWorld predicted a total loss of 15Mt from the wet season.
Macquarie expects premium hard coking coal to hit $US290/t FOB in the June quarter, noting there is an upside risk if there are further disruptions from Queensland’s ongoing wet season.
The analysts noted there was no purchaser panic as of yet, with many steel mills “savvy enough” to source alternative coal supplies for this quarter after rains hit Queensland earlier than normal in the second half of 2010.
“However, from this point forward, finding the coal will be the big problem,” Macquarie said.
“Undoubtedly, we will see the return of ‘crossover’ coal as thermal material is pushed into the PCI [pulverised coal injection coal] market, while some small met tonnage additions may emerge from Indonesia and the US; however, these are small compared to the Queensland effect.
“Trade statistics highlight that key importers all have generally ‘overbought’ in the second half of 2010, providing a short-term buffer against Australian disruption.
“As a result, we have not seen the level of market panic prevalent in 2008; however, with inventory levels ranging between one and two months of consumption, the potential for significant shortfall will be on the radar given the likely ongoing disruption in Queensland.”
But Macquarie is also tipping a peak in global steel output next quarter and thus a pullback in met coal prices in the second half of 2011.
“However, in our view, the new ‘normal’ through the medium term is a $US200-250/t FOB Australia price for hard coking coal, representing a healthy premium to marginal cost support,” the analysts said.
Thermal coal
Newcastle spot thermal coal prices are soaring to levels of up to $US140/t FOB.
Macquarie said there was rising demand for coal in the Atlantic Basin, representing a fundamental improvement in the market.
“Second is the more transitory effect of supply disruptions not only in flood-ravaged Queensland, but also in Colombia, South Africa and Indonesia.”
The analysts expect the culmination of these events to cut seaborne supply by 5-10Mt in the current quarter, which is followed by the start of annual contracts for the Japanese financial year.
Going by how previous deals were struck, Macquarie expects the Japanese power utility companies “to pay near the prevailing spot rate at the time of signing”, which could be $US145/t.
“This is despite the fact that a big part of the pressure on markets is likely to be transitory, with spot prices potentially coming down as fast as they rose in 2H11 [second half].”
India was seen as the biggest driver of demand growth for the commodity, while China was not expected to bite unless Australian seaborne thermal coal prices fell to the $US110-120/t range as its domestic supply chain appeared to be “working well”
