By Kishori Krishnan Exclusive To Coal Investing News ^{[1] [2]}

Coal prices have fallen from a record high of $200 a tonne delivered into Europe last September to around $60 at present. Demand for coal in Asia is a major support factor for coal prices and China and India are expected to continue to drive demand growth in Asia. Europe is also expected to see a more balanced market from Q3 this year, analysts said.

The seasonal winter rise in global coal demand for power generation is set to absorb the current supply glut and boost prices, they added. As if in tandem, shares in UK Coal (UKC.L) climbed 3.9 per cent as Evolution Securities repeated its "buy" rating and raised its target price to 289 pence from 170 pence. The analyst firm said the company "is set to benefit from new, more realistic, supply contracts with the electricity generators".

"These contracts (announced on April 27) will ease the group's funding requirements as they come with a 100 million pounds `loan' that the group can apply to the further development of its deep mining operations," said the broker.

Evolution also said the new contracts would allow a significant increase in price received for coal which would generate an increase in earnings and cash-flow. As a result it has upped its valuation of the coal mining business. Evolution Securities analyst Charles Kernot told Reuters TV on Thursday: "The forward curve for (benchmark) API2 coal swaps is $100 for 2010 on average, which reflects a reversal of the glut we've got at the moment and a move into a more natural market next year," Kernot said.

"We will see price support from Q3/Q4 this year but it's a big call to predict prices will go bac ^[3]k over $100 a tonne again," said Clive Murray, Chief Executive of London Commodity Brokers, appearing on the same programme.

Not to be outdone, JSW Steel, India's largest steelmaker by capacity, has reportedly signed a coking coal contract for the year at $100 per tonne, said Sajjan Jindal, vice chairman and managing director. He said the deal was signed with an Australian company, but refused to divulge its name. Last year, JSW Steel had contracted coking coal at $305 per tonne. Jindal said that the company is currently buying iron ore from the spot market at $17-18 per tonne.

On Thursday, JSW Steel reported that its net profit on a standalone basis dropped to Rs 49 crore in the quarter ended March 31, 2009, from Rs 370 crore in the same period last year. The company said it had sourced raw material at a very high price ^[4]in the second and the third quarters. However, steel demand was low and inventories piled up in the quarters, which it cleared in the fourth quarter.

Seshagiri Rao, director (finance), said, "This loss on consolidated basis was basically because of the huge write-downs of inventories at our US operations. We have written down inventories worth $54 million in the fourth quarter." Jindal said the utilisation levels at the US plant currently are just 10-15 per cent.

India has been importing up to 35 million tonnes of coal during the past few years but this is set to rise to 50 million tonnes a year in the forseeable future. Yet another Indian firm, McNally Bharat Engineering Co Ltd (MCNL.BO) signed a deal with KHD Humboldt Wedag International GMBH and its units in Germany, India and Hong Kong to buy their engineering, coal and mineral technology businesses. The turnover of the businesses were around $50 million.

Results out

Alpha Natural Resources Q1 net has risen on higher coal prices. Alpha Natural Resources reported income of $41 million in the first quarter, up from $25.5 million in the same period last year, as higher coal prices offset lower demand for the fuel.

The Abingdon, Virginia-based coal producer earned 58 cents/share in the quarter, beating Wall Street expectations, which Thomson One Analytics pegged at 48 cents/share. The company earned 39 cents/share in Q1 2008. Q1 revenue from coal sales was $424.4 million, compared with $422.4 million in Q1 2008 despite a 1.3-million ton decline in sales volumes between the same two periods.

During the quarter, Alpha Natural said that it hit a record coal margin of $23.48/ton, 81 per cent higher than in the same period of 2008. "Improved pricing of this year's thermal coal contracts was the main reason behind the record unit margin," the company said in a statement, but added that it remained cautious about the rest of the year.

Wrestling match

Meanwhile, Kentucky hasn't touched its coal severance tax rate or its mine permit fees in about 30 years, while other taxes and fees gradually increased and other coal states asked the mining industry to contribute more. Gov. Steve Beshear and the legislature could find themselves wrestling this summer with a $1 billion state budget shortfall.

Several top lawmakers work for coal companies, including House Speaker Greg Stumbo, D-Prestonsburg, and House Majority Leader Rocky Adkins, D-Sandy Hook, both employed by Ashland-based Energy Coal Resources.

"This is a subject that desperately needs to come up ^[5], but, obviously, we have strong coal interests throughout Frankfort," said Rep. Jim Wayne, D-Louisville, a tax-reform advocate on the House budget committee.

"Still, we haven't faced this sort of a budget shortfall before," Wayne said. "I'd like people to take off their coal company hats when they walk into the Capitol and consider instead the good of the entire commonwealth."

It's considered likely that Beshear will call the legislature into special session this summer to deal with the projected budget shortfall for the fiscal year that starts July 1.

Acquisitions on

A West Virginia coal executive has purchased the equity of the bankrupt luxury Greenbrier resort in West Virginia and will ask the courts to dismiss the bankruptcy case, according to a company statement. The deal supplants an earlier agreement.

Jim Justice, who sold privately held West Virginia-based coal company Bluestone Industries to Russia's Mechel OAO (MTLR.RTS) last month for $436 million, bought the resort and 80 per cent of The Greenbrier Sporting Club, according to a Greenbrier statement. The Sporting Club is a private residential development at the resort.

When Greenbrier filed for bankruptcy in March, it said it planned to sell the resort ^[6]to Marriott Hotel Services. The sale was contingent on winning concessions from unions and $50 million in financing from CSX Corp (CSX.N), the transportation company that owned the resort.