The current contract price for hard coking coal of $US125 per tonne, an increase of 119%, has turned the coal industry around, attracting new investment and kicking off a raft of new projects. Now is the time for those companies that lived through and survived the lean times to make a profit. As one coal producer commented, if you can’t make money in this market, you may as well be in another business.
How long the current upswing in the cycle will last is a key area of discussion for the entire industry -- producers, suppliers and investors. AME’s Export Metallurgical Coal Strategic Market Service, titled Jackpot!, looks at the events that have led to the current market and ponders what further jackpots are around the corner.
AME believes the market outlook for 2006 is still positive for coal exporters, but that prices will ease from their current levels.
“Some of the additional margin generated in JFY 2005 will be needed to offset spiralling production costs, which have surged by as much as 30%. Higher material and fuel inputs, increasing equipment and labour costs and appreciating currencies have been key factors in driving up costs,” AME said.
AME believes the huge build-up in export capacity presently under way in Australia and Canada will see the current hard coking coal deficit evaporate by late-2007, despite the strong export demand growth that is forecast for the next five years.
Demand will continue to be driven by rising world steel production, particularly in countries like China and Brazil, and by the increasing inability of other countries such as India to service their own total coking coal requirements from local production.
Meanwhile, research organisation Merrill Lynch increased its coking coal price forecasts for the 2006-2007 Japanese fiscal year from a roll-over in term benchmark prices to a 10% increase.
Merrill’s research suggests there is as much as a 13 million tonne deficit of coking coal in 2005, greater than the 2004 deficit, which drove up hard coking coal prices 120%.
"We forecast the market will continue to be in deficit in 2005, moving to a slight surplus in 2006 as mainly additional Australian supply from BHP Billiton comes on-stream,” the company said.
