By Kishori Krishnan Exclusive To Coal Investing News

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Though the world economy continues to remain frail, more and more production is coming on line and mines are being developed. And as factories begin to open rather than close, and for all the new nuclear power plants being foreshadowed, there will be an enormous demand for thermal coal. A false dawn?

Not exactly. Though the activity in the US economy remains subdued, it is noticeable that several US coal stocks have put on substantial gains in recent weeks. Like for instance, Foundation Coal (FCL) shares which went from US$14.07 in March to US$29.51 six weeks later, and James River Coal (JRCC)  was US$9.09 in March, US$23.05 by early April, and has stayed near that level.

Shares in Indonesia’s biggest coal producer, PT Bumi Resources Tbk (BUMI.JK), jumped by as much as 8.4 per cent on Monday on news that China had placed orders to buy 8 million tonnes of coal from it in 2009. “Eight million tonnes is quite big. It is one of the factors supporting the gain,” said Muhammad Al Fatih, an analyst at BNI Securities in Jakarta. Bumi had reported sales reached 53 million tonnes in 2008.

Coalworks (CWK) has just engaged mining consultants from Runge (RUL) to come up with a bankable feasibility study at its Oaklands thermal coal project in southern NSW. With a resource of 760 million tonnes, Coalworks is looking at producing 3 million tonnes a year, working up to 6 million. Oaklands is near an existing rail line, so coal can be loaded there and sent direct to Geelong for export.

On June 4, prices of power-station coal from Australia, a benchmark for Asia, rose to a three-and-a-half-month high of over $72 a tonne on higher oil prices and expectations that a recovery in global economy would spur demand.

Thermal coal prices in the globalCOAL Newcastle index rose $6.48 from the previous week to $72.79 a tonne, the highest since February 24 when it stood at $73.38 a tonne. `’There is some direction now with the gain in oil prices. Also, there is positive sentiment about the global economy that is pulling up prices,” a regional trader said.

In China, sources indicated that, coal stock at the Qinhuangdao port, China’s major coal port, has reached 4.88 million tonnes increasing by 36.2 per cent, or 1.29 million tonnes compared with May 1. In the face of the rebounding coal stockpiles, some industry insiders expressed that this would exert pressure to coal price, and also some analysts believe that it can be regarded as a reflection of the traders’ positive attitude.

China’s Guangzhou port has witnessed the same trend, with coal stock rebounding to current 2.53 million tonnes from 2.2 million tonnes in early May by 15 per cent. An expert from China Coal Industry Association said, “What makes a difference between March and April is that coal stock is also increasing in power enterprises, instead of merely keeping stable.”

An expert said, “In the short term, the coal market will still be in a state of oversupply, so it does insert pressure on the coal price. However, no signs point to coal price dropping at the Qinhuangdao port so far and high grade mixed coal with 6,000 calorie per kilogram at the port had prevailed at CNY 620 per tonne to CNY 640 per tonne.”

An analyst from a security company said that growing coal stock indicate traders’ confidence has recovered to some point. At present, the stocking time remains at eight days which is a normal level compared with seven to eleven days in history. He further pointed out that a rip might show up in coal supply and demand in the near future.

Corporate news

Coal producer Semirara Mining Corporation (SCC) has successfully entered the Thailand market during the first quarter of the year, helped by its new trading partners. The Philippine company, now in its third year of doing business in the international market, scored a success in gaining access to Thailand, a new market for Semirara.

Semirara said new partnerships in coal trading have been forged that helped it clinched the Thai market, adding that coal traders Noble Energy and Coal Pulse were instrumental in cultivating Thailand as a buyer of Philippine coal.

In a disclosure to the Philippine Stock Exchange, Semirara said coal exports remained robust in the three months to March, despite a two-percent decline in deliveries compared to a year earlier.

It noted that coal exports dropped to 443,101 metric tons (MT) 453,670 MT during the same comparable period. Also, Semirara noted that Holcim Cement as a buyer is a significant marketing breakthrough. Holcim is one of the county’s biggest cement companies.

Meanwhile, South Korean utility Korea Midland Power Co (KOMIPO) has agreed to buy part of its 2009 term contract tonnage from Xstrata’s (XTA.L) coal unit at about $63 a tonne, a utility source said on Wednesday.

The long overdue settlement for contracts beginning from April may set a benchmark for other South Korean utilities, which have been locked in talks since the start of the year.

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