AFS Group GM Pradil Maharaj is quoted saying:

” We oversee the entire fuel and lubricant process, from ordering bulk deliveries to dispensing to the mine’s various vehicles and equipment.  This way, we can account for every drop of fuel on the mine.”

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A major Indian trader said during an interview, “MSEB is in the market for a large tonnage, National Thermal Power Corp. will be tendering for at least 14 million tonnes soon and there are several others ready to come out now including Coal India.”

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Link to MSEB here:

Coal Investing News

Analysts expect coal prices to continue to rise after a strong first quarter performance with demand from China and the United States putting increased pressure on limited supply. And, The World Bank approved funding for a massive coal-burning plant in South Africa.

Steel-making coal prices jumped 22 percent last week over the previous week, according to the weekly Energy Publishing Coking Coal Index.  Prices rose to $241.67 a ton for the variety of coking coal known as “high-vol,” up from $198.50 the previous Friday.

Both POSCO senior vice-president Kwon Young tae and Puda Coal Inc. chief financial officer Laby Wu expect coal prices and demand will continue to rise.

Reuters reported that POSCO, South Korea’s second largest steelmaker, expects tight raw material markets in the second half of this year, with demand from China and the United States continuing to buoy prices.

Young tae says, “We expect tight conditions to continue in the iron ore and coking coal markets in the second half. We will set raw material procurement policy in accordance with these expectations.”

The Macquarie Group Ltd estimated China’s demand for coal used to make steel is forecast to rise 5.6 percent.

“Demand is still strong,” Wu told Business Week from Beijing speaking of coal in general. “Prices will increase from 2009 due to strong demand for electricity generation.”

Wu expects coal prices will increase this year as the nation’s industry expands and a drought in the southwest region reduces hydro-power generation.

Wu said China’s top economic planning agency projects coal production won’t meet supply this year and the country will remain a net importer. Electricity generation is projected to increase by seven percent in 2010, which will also place a higher demand on the coal supply. According to Wu, domestic raw coal production will only rise three percent this year.

Certainly, the numbers from some of China’s top coal producers back up Wu’s assertions that demand will exceed supply.

China Coal Energy Co Ltd, the country’s second-largest coal miner by revenue, announced its coal output was up 53 percent over 2009 numbers to 10.88 million tonnes in March while the company’s total coal sales volume increased by 67 percent from the previous year to 10.63 million tonnes.

China Shenhua Energy Company Limited, the second largest coal mining enterprise in the world, announced their coal production was up 8.3 percent to 56.1 million tonnes in the first quarter while sales raised 14.2 percent to 65.1 million tonnes.

Meanwhile, Peabody Energy (NYSE:BTU), the world’s largest coal mining enterprise, is still in the bidding for Australian-based Macarthur Coal after raising its initial offer by 14 percent to $3.8 billion. This comes as Macarthur rejected a $3.44 billion takeover bid from rival Australian coal firm New Hope (ASX:NHC).

Macarthur, the world’s largest producer of low-volatile pulverized injection coal used in steelmaking, had already rejected an earlier offer takeover from Peabody Energy saying the offer “did not represent an adequate premium.”

Analysts at Citigroup expect mining giant Xstrata and China’s Citic Group to enter the bidding race and it’s likely other companies will show interest, causing a bidding war for Macarthur.

World Bank Votes for Coal

The World Bank made a clear statement regarding coal-fired power plants April 8^th, when it approved for a $3.75 billion loan to South Africa’s state-owned electricity supplier Eskom Holdings Ltd to help build one of the world’s largest coal-fired power plants. The Bank believes electricity plays a central role in poverty reduction and, by moving ahead with this project, is favoring  cheap energy to help raise people out of poverty over the concerns of environmentalists.

“The Eskom project seeks to support South Africa’s efforts to achieve energy security,” the World Bank said in a statement.

“We believe that there can be no poverty reduction without power, and sustainable development cannot be achieved without addressing climate change… the Eskom project is helping to get this balance right,” the Bank said.

By Kishori Krishnan Exclusive To Coal Investing News

As industrial activity rebounds from last year’s economic downturn, the world is witnessing a coal shortage, all of which is driving up prices.

Coal prices are destined to go even higher as they follow the rise of ‘coal currencies’ such as Australian Dollar (AUD), South African Rand (ZAR) and Columbian Peso (COP).

The BofA Merrill Lynch Global Report on energy pointed out that many “oil currencies” including UAE Dirhams (AED) and Saudi Arabian Riyal (SAR) are pegged to the US dollar, but coal exporters tend to keep a free float therefore currencies linked to coal have outperformed both their emerging market and G-10 peers.

The report notes that near upside gains in steam coal will be limited to US dollar weakness.

Predictions are afloat that steam or thermal coal is expected to shoot up to $100 per tonne by 2012, up from around the current $70. Point to note: metallurgical or coking coal is already selling for $160 per tonne — way above this year’s benchmark of $129.

Chronically short

Demand for coal to generate electricity and make steel in China and India is expected to grow by 7 per cent to 8 per cent annually in the next five years, leaving the world “chronically” short of the fuel, the head of US coal miner Peabody Energy Inc (BTU.N) said on Tuesday.

Outlining his company’s plans to double exports from Australia to handle Asian demand and to develop its joint venture in Mongolia to produce coal for the Chinese, chief executive Greg Boyce added: “We believe China is short of met (steel-making) coal and demand is shredding supply and pushing prices north.”

Peabody President Richard Navarre noted that China had become the company’s biggest metallurgical coal customer in just one year, as the country had imported 25 million tonnes so far in 2009, more than 10 times last year’s pace.

Through August, China’s net imports of thermal coal totaled 38 million tonnes compared with net exports of 7 million tonnes last year.

Peabody’s mines in the Powder River Basin of Wyoming and Montana would likely produce the extra coal needed to supply the Pacific market. Peabody has also opened an Asian trading hub in Singapore, established a new business center in Indonesia and plans to further expand international investments.

Short supply

India may be as much as 200 million tonnes short of its needs in five years, positioning it as the fastest-growing coal importer.

For its supply, India will have to turn to seaborne markets. In the next five years with 7 per cent to 8 per cent growth compounded annually, which is 300 million to 400 million tonnes per year, the demand is far set to outstrip supply.

Recent indicators are sure-fire pointers – South Africa exported 1.4 million tons of coal to India from the Richards Bay Coal Terminal during September 2009.

Export prices rose 45 cents, or 0.7 per cent, to an average of 64.05 a metric ton in the week ended October 16, according to McCloskey Group.

The week was “very quiet,” Andrew Wells, an assistant editor at Petersfield, England-based McCloskey, said. He speculated that buyers may be waiting for the October 25-27 Coaltrans coal conference in London to get a better feel for the market.

The price of coal delivered to northwest Europe is expected to climb to more than 100 a ton by the middle of next year. That price rose 1.6 per cent last week to 73.60 a ton, McCloskey data show. It has slid 38 per cent over the past 12 months.

Richards Bay Coal Terminal shipped 22 per cent less of the fuel in September than a year earlier. Exports decreased to 4.16 million metric tons from 5.32 million tons.

Even China exported 2.02 million tons of coal in September down by 2.9 per cent year on year compared with the 2.08 million tons in last September.

Company news

Pike River Coal may turn to its Asia-Pacific customers with a share offering to raise $20 million needed for operational outgoings in the first half of 2010.

In a quarterly report to shareholders, the NZX-listed company said despite operational improvements over the last two months, pushed-out dates for the first coal deliveries and sale proceeds had increased working capital costs.

Pike River is waiting for primary funder Liberty Harbor to extend the US$ 27.5 million convertible bond from November to June 2010, as it requires the company to be capable of producing 800,000 tonnes in the six months from condition date, which is unlikely to be met.

About $20 million is needed to bolster existing funds and loan facilities for working capital, which may come from increased debt or equity, the company said.

Chief executive Gordon Ward said an Australian-based specialist coal industry commercial adviser had canvassed its Asia-Pacific customers and believed there was strong interest in securing a long term coal off-take agreement at competitive market prices, possibly including a share placement at a premium to Pike River’s share price.

Xstrata Plc, the world’s largest exporter of coal used by power stations, said third-quarter output of the fuel gained 7.9 per cent after it acquired two Colombian mines in March.

Production increased to 21.9 million metric tons, from 20.3 million tons a year earlier, the Switzerland-based company said.

Total coal output, including coking coal, advanced 8.9 per cent to 25.6 million tons. Volumes of platinum group metals, refined nickel, zinc in concentrates and lead also gained.

Xstrata, which last week dropped a proposed merger with Anglo American Plc, shuttered some Canadian and Australian mines in the first half and cut spending after demand for commodities slumped.

Indonesian state coal miner PT Tambang Batubara Bukit Asam Tbk (PTBA.JK) said on Wednesday it had been given government approval to start development on a new rail line in South Sumatra that would boost coal output.

The transport ministry had approved in principle a 307 km rail line connecting its coal mine in Central Bangko in South Sumatra province to the port of Lampung, on the southern tip of Sumatra island.

“The approval gives certainty to start the rail project,” the firm said, adding the new railway would have the capacity to transport 20 million tonnes of coal a year.

The figures are daunting. Coal demand in the international market has been waning. International coal prices have been lingering at a low track from March to May. And statistics from China’s customs show that China’s imported coal in May reached 9.43 million tonnes surging by 133.1 per cent year on year, which is also the highest level ever.

From January to May, China’s combined imported coal volume was 32.2 million tonnes jumping 72.6 per cent year on year. In May, China exported 1.19 million tonnes of coal, plunging by 69.5 per cent year on year, also the lowest level since February 1998. The combined export volume in the first five months remained at 10.53 million tonnes declining by 43.1 per cent. From January to May, China’s net import volume of coal was 21.67 million tonnes compared with the 340,000 tonnes year on year.

The alarm bells have started ringing, though analysis and traders ascribe the fall to various reasons: the decline in demand in the international market, previously cheap international coal as well as high domestic coal price.

International demand has been shrinking, which is the fundamental reason for the surge of China’s coal imports since the year. Apart from China’s mainland, other regions worldwide have all witnessed crude steel production declining, causing the demand for coking coal to wane. Moreover, China’s domestic coal price has run high. In a bid to stave off the wolf at the door, China’s coal consumers have actively imported overseas resource.

Owing to the rapid increase of coal imports and rise of international crude oil, international coal price has experienced a round of recovery since late May. Till June 12, South Africa’s RB index, Australia’s NEWC index and Europe’s AR index had prevailed at US$64.78 per tonne, US$76.75 per tonne and US$71.06 per tonne respectively.

Compared with the average price of May, they each went up by US$6.85, US$12.51 and US$7.25 respectively. In the meantime, since late June coal price at China’s Qinhuangdao port dropped CNY 5 per tonne to CNY 10 per tonne.

Rays of recovery

But there are rays of hope elsewhere. Western Australia’s miners have recorded their fifth consecutive month of growth, a report by finance house Deloitte has reported. The result has driven up the WA Index by almost 6 per cent which equates to US$ 6.7 billion increase in shares worth.

Keith Jones, managing partner of Deloitte WA said that things were definitely heading in the right direction. “The Deloitte WA Index has climbed from a low of AUD 72.4 billion in November 2008 to AUD 118.6 billion at 30 June 2009. That’s a rise of AUD 46.2 billion or about 64 per cent.”

Jones added that equity funding was now flowing again, as global confidence in mining picked up and share prices were at more realistic levels.

Still on China, a cape cargo of high-ash, low volatile content Australian coal is being offered on the water at US$ 72.00 a tonne CIF South China, after the Chinese buyer cancelled the contract. “All we know is the Chinese buyer walked away,” one trader said. This is the first confirmation of a Chinese coal buyer cancelling a contract, traders said. There have been rumours for a week or so that Chinese buyers were trying to escape from contracts because of high stockpiles and slower end-user consumption in China.

Investments on

The Coal & Oil Group is planning to invest around $300 million to buy new ships and to acquire coal mines. The company is planning to invest the money to support its customer coal requirements in India and to meet its captive requirement for an upcoming project - the Rs 4,300 crore power project at Tuticorin.

Green brigade

And with a major part of the world yearning to go green, a body blow has been dealt to coal producers with the Intermountain Power Agency confirming that it would not continue efforts to seek an air permit for a third 900-megawatt coal-fired power unit at its plant in Utah, USA.

The Sierra Club said the once-proposed Unit 3 at the Intermountain power station 120 miles southwest of Salt Lake City is the 100th coal-fired power plant to be scuttled since 2002. Coal power plants are said to emit more carbon dioxide than any other source in the United States. CO2 accounts for more than 85 per cent of the world’s greenhouse gas emissions that cause global warming.

Officials have, however, admitted that electricity rates in Los Angeles are set to increase as a result of the new policy. Nationally, about half the electricity delivered comes from coal plants.

“More than 400 million tons of carbon dioxide pollution have been kept out of the air annually as a result of stopping these 100 plants,” said a Sierra Club statement issued Thursday. “It also demonstrates an undeniable trend of American communities moving beyond coal and toward clean, renewable energy,” said the environmental group.

The Los Angeles city-owned utility has said it will stop using coal-fired power by 2020, although its contract to buy 44.6 per cent of the power from the existing two units at Intermountain will not expire until the last day of 2026. About 40 per cent of the electricity now delivered by the LADWP is generated from burning coal, mainly at Intermountain and at the Navajo Generation Station in Arizona.

By Kishori Krishnan Exclusive To Coal Investing News

After a dark winter for Canadian coal producers, spring supply contract negotiations halfway around the world are providing a glimmer of light at the end of the mine shaft. As news of the pricing agreement filtered through the market last week, Canadian coal stocks have reaped the benefits.

BHP Billiton Mitsubishi Alliance and Nippon Steel Corporation have reportedly settled on a price of US$128 tonnes to US$129 tonnes for coking coal for the 2009 Japanese fiscal year, which begins next month. That was far above the levels of less than $100 a tonnes that the market had feared early in the negotiations and even topped initial rumors of a $115 to $125 price settlement that leaked into the market last week.

While the result is less than half of fiscal 2008′s record price of $300 a tonne, it still points to one of the best years ever for coking coal prices and implies that Canadian coking coal producers could enjoy a better than expected year.

Daniel Brebner global mining analyst of UBS Securities said that “In our view, there is little other way to describe the outcome other than as a significant victory for mining companies. Despite one of the worst economic periods experienced in living memory, with considerable deflationary pressure, coking coal prices have been settled at their second highest level ever recorded in nominal terms.

Patricia Mohr vice president and commodities specialist at Bank of Nova Scotia said that the contract settlement suggests a price of about US$126 per tonnes to US$127 per tonne for Western Canada’s premium hard coking coal still above the peak of US$125 in 2005.” She said that “The price negotiated is lucrative compared with operating expenses.”

The improved pricing outlook prompted UBS’s MacArthur to raise his 12 month price target on Teck to USD$9 from USD$5 and ramp up his 2009 earnings forecast to USD$1.47 a share from 28 cents. Still, he cautioned that Teck’s debt problems remain a threat to the company. He said that “Even with the higher hard coking coal forecast, we believe that Teck will be challenged to meet its debt obligation without changes to operations, asset sales and/or other financing,” according to GlobeInvestor.

Chinese capers

According to a report by Reuters, China’s top coal miner China’s Shenhua Group has struck a 5-year supply deal for 85 million tonnes of coal while rival China Coal has suspended a $2.5 billion project because of the global financial crisis. Shenhua has agreed to offer state-owned conglomerate China Resources Group 85 million tonnes of thermal coal over the next five years, the Xinhua news agency reported on Saturday, citing an agreement between the firms.

Both companies promised to keep the price “relatively stable” and company representatives at a signing ceremony in Hong Kong said the agreement signalled “a strategic draw” after years of pricing games between coal miners and power plants, Xinhua said. But with prices under pressure because of falling power demand, China’s No.2 coal miner China Coal Energy Co Ltd (1898.HK)said it was suspending a 17 billion yuan ($2.5 billion) project in Heilongjiang province.

China’s coal miners are struggling with a downturn in demand from power producers after years of raging growth in the sector. “The supply and demand of coal will become less balanced, coal prices will fall and the reform of value added tax and resource tax may affect the profitability of coal enterprises to a certain extent,” China Coal said in its 2008 results on Friday.

China’s top coal producing province, Shanxi, plans to shut 1,500 coal mines with less than 900,000 tonnes of annual production over the next two years, leaving around 1,000 mines in operation, Xinhua quoted provincial coal mining official Wang Chonglin as saying on Sunday. The miners have yet to lock China’s five big power generating firms into price agreements for 2009. The absence of a deal between miners and power groups has attracted imports in recent months, worsening the oversupply at home.

Chinaesteel reported that Qinhuangdao Port completed coal shipment of 10.34 million tons during the first 17 days of March up by 43.4 per cent month on month from the same period of last month at 7.21 million tonnes equal to 600,000 tonnes of outbound shipment per day up by 41 per cent from daily average of 424,000 tonnes in February.

As of March 18, there were 121 vessels waiting for coal loading in the port, compared to 99 on March 16th and 72 on February 15th. Experts say sharp increase in demand from the thermal power sector in the south is responsible for the rebound.

Brazilian bravado

Brazilian mining company Vale has launched a $1.3 billion (£908.5m) coal mining project in Mozambique, the BBC reports. Vale is the world’s second-largest mining company and the largest producer of iron ore. The new plant is expected to produce 11 million tonnes of coal a year, to be exported to Brazil, Europe, Asia and the Middle East. It is thought Mozambique will now become the continent’s second-largest coal producer behind South Africa, which holds most of Africa’s reserves. Mozambique has attracted increasing numbers of foreign investors recently.

In total, the project is expected to generate 8.5 million tonnes of metallurgical coal, which is used for the production of steel. It will also produce 2.5 million tonnes of thermal coal, which is used for electricity generation, every year.

Mozambique’s president Armando Guebuza said: “We want these resources to continue contributing in a sustainable way to the improvement of the living conditions of our marvellous people.” The news is a boost for African commodities, which have been hit hard as consumers abroad continue to shun high-end purchases in the economic downturn. Commodity prices have also been badly affected by the reduction in demand from China, which once had an insatiable appetite for buying raw materials in order to fuel its now-fading economic boom. Countries such as South Africa, Congo and Botswana have particularly felt the effects of cooling trade in raw materials.

Japan‘s jump

Japan-based Marubeni Corp. is to bid for the independent power producer (IPP) contracts of the 700-megawatt Pagbilao and 1,000-megawatt Sual coal plants the Power Sector Assets and Liabilities Management Corp. will bid out in May. Marubeni is bidding to be the administrators of the Pagbilao and Sual IPP contracts. Tokyo Electric Power Corp., which operates the Sual and Pagbilao, did not join them in bidding.

Marubeni is a major general trading house in Japan, which has been doing business in the Philippines for almost a hundred years with its investments in the power, telecommunications, construction, industrial parks, food-processing and general-merchandise sectors.

Coal imports into China increase to record levels in February

By Kishori Krishnan Exclusive to Cola Investing News

China has discovered a new coal field containing more than 13 billion tonnes of proven coal reserves in the northwestern region of  Xinjiang, the China News Service reported on Monday. The 1,400 square-kilometre Sha’erhu coal field, located in the county of Shanshan in eastern Xinjiang, contains coal suitable for power generation and gas conversion. Exploration began on the coal field in August last year, and the local prospecting bureau said that total reserves could eventually reach a total of 64 billion tonnes.  

Total estimated reserves in Shanshan County stand at around 240 billion tonnes, according to the China News Service. Shanshan aims to raise its total coal production capacity to 400 million tonnes per annum by 2020.  

Also in China, coal imports surged to the highest level in at least 22 months in February to 4.88 million tons, according to data released by the General Administration of Customs on Monday. That represents a 63 per cent increase compared to January, and a 73 per cent increase compared to February 2008. 

Analysts say that China, the world’s biggest coal producer and consumer, increased imports of the fuel as power producers boosted overseas purchases on falling international coal prices and lower shipping costs. 

The coal price at Qinhuangdao port, a benchmark for China, stood at 557.5 yuan ($81.5US) a ton as of March 16, according to the China Coal Transportation and Distribution Association. The Qinhuangdao coal price has fallen from a July record of 995 yuan a ton. 

The disagreement between China’s utilities companies and coal miners over this year’s contract price for coal is another reason that local thermal power producers have had to purchase coal overseas. 

Wang Ling, analyst with Umetal.com, believes that coal imports will continue to increase in March and may drop beginning in April. “China’s coal producers may suffer a loss due to increased overseas purchase by utility companies,” said Han Xiaoping, an energy analyst with Beijing Falcon Pioneer Technology Co. 

Other analysts, however, believe that imported coal will not pose a threat to local coal, simply because no single coal producer has a production capacity large enough to satisfy China’s rising demand. 

Out in the cold 

Xstrata Coal (LON:XTA) has revealed it could sack hundreds of Queenslander workers and bin a $5 billion project because of an emissions trading scheme (ETS). A written briefing to Opposition Leader Malcolm Turnbull has revealed the world’s largest exporter of thermal coal could retrench 1,000 employees across Australia – with predictions half could be in Queensland – and sacrifice 4,000 future national jobs. 

The document, sporting Xstrata’s logo – and seen by The Courier-Mail – revealed up to four mines across Australia could close and up to $7 billion in investment could be lost under an ETS. It did not reveal how many of the 1,000 jobs would be lost at Queensland mines but had the state’s $5 billion Wandoan Coal Project, in the Surat Basin, is said to be on the chopping block. 

It is estimated that the Wandoan project would have created 1,300 jobs in its construction phase, with an operational staff of 840. 

The revelation came after Xstrata – which declined to comment when contacted by The Courier-Mail – laid off 150 workers in January at its Handlebar Hill lead and zinc mine near Mount Isa. In December it shed 230 workers at its Oaky Creek No.1 mine at Tieri, in central Queensland. 

The proposed closures are bad news for the Bligh Government, which is facing falling mining royalties and has been developing Wandoan with Xstrata. A new railway line has been proposed to link the mine to the Port of Gladstone. The project has a “mine life” of more than 30 years, producing thermal coal for export.

Company news

The Tata Power Company has decided not to sell stake in two Indonesian coal mines owned by PT Bumi Resources. Tata Power holds 30 per cent stake in each company – PT Kaltim Prima Coal and PT Arutmin Indonesia, owned by Jakarta-based PT Bumi Resources Tbk. This acquisition is a key part of the company`s growth strategy and the company has no intention to sell its stake in the coal mines to Bumi Resources, the company said in a statement. 

Donald Benson, chairman and Chief Executive Officer of Nordic Oil and Gas Ltd. (CVE:NOG)  has announced that its board of directors has approved the granting of 1,225,000 stock options to directors and officers of the company, along with selected consultants and employees. The options, which are effective immediately, are priced at $0.07 per share, will run for a period of five years. Nordic Oil and Gas Ltd. is a junior oil and gas company engaged in the exploration and development of oil, natural gas and Coal Bed Methane in Alberta and Saskatchewan.

Coal bull is back

We are into the second half of the second month of 2009 and pressure on coal prices have not eased. While the long-term outlook in this sector remains strong, thanks to strong fundamentals, spot prices continue to be under pressure. The reasons are being cited as high utility coal inventories, lower demand for electricity and competition from natural gas.

A statement by the International Coal Group (NYSE:ICO) has voiced similar sentiments. The latter is a leading producer of coal in Northern and Central Appalachia and the Illinois Basin. Analysts say falling coal prices have prompted the idling of some mine operations, while companies have decided to curtail production.

They point out that the time is also ripe for some big fish to gobble up small producers who cannot sustain themselves in such weak conditions. A hint of this came through when Chairman and Chief Executive Officer of Arch Coal Inc (NYSE:ACI) Steven Leer spoke to analysts after declaring his company’s fourth quarter results on the last day of January. He said that with a strong balance sheet, it was now a good time for Arch to make acquisitions. “Given the decline in pricing of assets we have seen, we are actively looking and see opportunities out there.”

On Thursday, though, most of the coal mining companies closed at a high on the New York Stock Exchange (NYSE), except for a few like ICG. This international coal producer had declared its results for 2008 on February 11, reporting a net loss of $24.7 million, or $0.16 per share on a diluted basis, against a net loss of $147.0 million, or $0.97 per share on a diluted basis, in 2007. The company’s 2008 and 2007 results include non-cash charges totaling $37.4 million and $170.4 million,respectively, related to the impairment of goodwill and non-recoverable mine development costs. Revenues for the year ended December 31, 2008, though showed an increase, totalling $1.1 billion, compared to $849.2 million for the year ended December 31, 2007.

ICG’s results come in the wake of Arch Coal declaring in the previous week-end, a slump in its fourth-quarter profit by 23.5 per cent, blaming falling coal prices that prompted the idling of some mine operations. Like other companies in this sector, ACI has now lowered production targets for 2009. The coal miner, one of the top four U.S. coal producers, also reduced its capital spending budget and said it expects a weaker coal market in 2009, although it remains bullish on the longer-term outlook for the industry.

Reuters quoted analyst Jeremy Sussman, of Natixis Bleichroeder, as saying that although the quarterly results beat Wall Street estimates, they were overshadowed by the cut in estimated coal sales for 2009 by perhaps more than 10 per cent. “We view the quarter as a slight negative, given the magnitude of the lower sales outlook. Lower production by as much as 16 million tons is enough for people to reduce (earnings) estimates.”

“We are approaching 2009 with a cautious view of the current global and domestic economic challenges,” Chairman Steven Leer said in a statement. “We are taking specific actions to address such challenges. A lot of companies are stressed in the credit markets or with permitting (acquiring mine permits), and historically it’s in the distressed market that we have acquired our best assets,” he said.

Leer also said Arch was looking to expand its exports to Asia in the next few years from Pacific ports, even though he saw U.S. exports industry-wide declining this year while the recession stunts steel manufacture and electricity generation — the two main uses for coal. 

The Asian markets are sure to be watched keenly this year. China, India and others are expected to continue to pursue unabated coal consumption, as coal is in vast demands in these regions. Meanwhile, China’s top economic planning agency has proposed a 5-8 per cent price rise for annual coal supply contracts this year, the official China Securities Journal said.

Company news

Amidst news of target reductions comes some good news. BHP Billiton’s (BLT.L) South African coal subsidiary, one of the world’s largest coal exporters, will produce 34 million tonnes in 2009 compared to 48 million last year, according to a company official. BHP’s output is set to fall after the company sold its Optimum coal mine in a black economic empowerment (BEE) deal. BEE is a government-driven programme meant to include blacks in the mainstream economy after years of exclusion under apartheid.

“The forecast for BHP’s (total) production in 2009 would be in the region of 34 million (tonnes),” Wilco Uys, BHP’s vice president for coal operations in South Africa told Reuters on the sidelines of a mining conference in Cape Town. Uys said BHP Billiton was on track to boost coal production by 2011 as it begins to reap the rewards of a $1.4 billion investment to upgrade sites in Africa’s strongest economy. BHP is the world’s biggest miner.

Disposal of interest 

U.K.’s Coal PLC has announced that its wholly-owned subsidiary, UK Coal Mining Limited, has completed the disposal of its 50 per cent interest in Coal4Energy Limited to its joint venture partner, Hargreaves Services PLC for a total cash consideration of £9.0 million, payable in full on completion.

Coal4Energy markets and sells domestic and industrial coal produced by the Group and coal supplied by Hargreaves. The net profit to the group from the disposal is estimated to be around £7.0m, and the proceeds will be used to reduce borrowings and fund investment. The disposal is not expected to have a significant impact on the group’s operations.

UK Coal Mining Limited has also today agreed to continue supplying circa 250,000 tonnes per annum of certain coals for the domestic and industrial market to Coal4Energy Limited under a new exclusive, five year supply agreement. The estimated book value of the gross assets of Coal4Energy on completion is approximately £19.0 million of which the group’s 50 per cent share is approximately £9.5 million.

Proceed with caution

A longtime U.S. congressional critic of the oil and gas industry said that there may be a place for expanded offshore drilling and a long future for coal in the U.S., but only with caution and a lot of investment.

Rep. Edward Markey, D-Mass., told an energy industry gathering in Houston at the start of the week, that he saw the recent surge of new power projects fuelled by natural gas and renewable sources like wind, a very good partnership for the future. But he conceded renewables can go it alone.

“I think we can find areas of the Outer Continental Shelf that are acceptable for drilling, but we need to protect our most sensitive areas,” said Markey. He declined to identify specific areas he considered acceptable. Markey said he could also see a significant role for coal, noting that coal accounts for half of the country’s electric power.

By Melissa Pistilli-Exclusive to Coal Investing News

Rio Tinto Group recently gave a big break to JSW Steel Ltd. on an existing contract.

The mining major’s move to cut its coking coal prices for the Indian company by 43 per cent are a dark sign of things to come for coking coal miners. “It’s an indication the market is going off rather quickly and rather savagely — to agree to reduce a previously agreed price, there’s really no other conclusion,” one analyst commented.

JSW will now pay US$175/tonne for coking coal from Rio for the remainder of the year, a big drop from the US$305/tonne the major was able to extract while commodities were booming. 

Price talks for upcoming annual contracts between coal producers and steel manufacturers are just beginning and this latest news is sure to have an impact on the outcome. “It paves the way for lower prices for this year’s contracts,” said Francisco Schumacher, an analyst at Raymond James.

No doubt, steel manufacturers will now have precedent to push Rio Tinto, its competitor BHP Billiton Ltd. and other coal miners for much lower contract prices. Both Rio subsidiary Coal & Allied and Felix Resources have reported they are expecting significant cuts in upcoming contract prices that analysts predict will return to near 2007 levels.

“Normally we would not say that if there was going to be a few dollars in it, but obviously it’s going to be substantially reduced,” said Brian Flannery, Felix Managing Director. Steve Hulton, senior analyst at Wood McKenzie, attributes the heavy price reductions to weakening coal demand and a lack of investor confidence in the commodities market.

Major players like BHP, which dominates the coking coal export market, Rio and Xstrata Plc have already begun to slash production as steel mills around Asia reduce their orders to just the level necessary for maintaining blast furnaces. A Coal & Allied spokesman said the company will most likely cut back on its coking coal sales this year as well.

Most industry analysts are predicting a more than 50 percent drop in coking coal price for 2009. Goldman Sachs JBWere has said that weak global steel demand is threatening the contract price of all types of metallurgical coal. ”The current oversupply could take several months to work through and we envisage a very tough market in which to be negotiating supply contracts.”

Thermal coal prices

Thermal coal, used to fuel power stations, is also expected to feel the effects of a shrinking global economy.  The most recent contract agreements point towards a 30 per cent drop in thermal coal prices. “We will see more subdued markets in 2009, with thermal coal prices likely to soften compared with 2008,” said Coal & Allied Managing Director Bill Champion. “As well, the premium for semi-soft coking coal over thermal prices also is likely to narrow.”

As coking coal prices tripled last year on strong demand from growing economies, many coal miners began producing more coking coal in lieu of thermal; however, while coking coal prices have taken a dive thermal coal demand has maintained a stronger position relative to other commodities.

Rio to let go of Coal & Allied

There are reports that Rio Tinto is looking to sell its stake in its subsidiary Coal & Allied. The company is laden with debt and trying to save money by reducing its capital expenditure, cutting its workforce and selling off some of its assets.

Apparently, there are a few buyers interested (including Brazilian mining giant Vale) in taking the 76 per cent stake worth US$3.8 billion off Rio’s hands. Coal & Allied owns three operations in the Hunter Valley of New South Wales and produces semi-soft coking coal, thermal coal and PCI coal.

Shares of Peabody Energy Corp [NYSE: BTU] shot up as much as 15 per cent Tuesday after the company reported an eight-fold gain in quarterly profits and announced it had obtained the option to purchase a stake in a Mongolian coal venture.

Fourth-quarter profits for the St. Louis-based company reached $293.2 million ($1.10 per share) from $35.8 million (13 cents per share) in the fourth quarter of 2007. Fourth-quarter sales exceeded analysts’ projections of $1.7 billion and jumped 61 per cent from the same quarter in 2007 to reach $1.9 billion.

Peabody shares have fallen 52 per cent from last year and are down 70 per cent from their 52-week high of $88.69. Although Peabody management admitted demand will likely decrease this year, the company remains confident. “We believe the ultimate recovery could be strong, as global economic and electricity generation growth resumes, at the same time that geologic and regulatory hurdles and lack of available capital limit a supply response,” said Peabody President and Chief Commercial Officer Richard Navarre.

Eyes on Mongolia

Despite the global economic slowdown, Peabody is actively positioning itself to take advantage of China’s growing energy needs. The company now has the option to purchase up to a 50 per cent stake in a joint venture that owns Polo Resources Ltd‘s [AIM: PRL] coal properties in Mongolia. The properties estimated one billion tonnes of metallurgical and thermal coal reserves are reportedly near key demand centers in China and offer access to Russian export markets.

Long-term forecast for coal remains positive

There is no denying the worldwide recession has led to global cutbacks in the demand for most commodities, coal included. Coal producers like Peabody have been forced to curtail production as demand slumps from both the steel industry and the energy sector.

In the U.S., Peabody Coal is responsible for nearly 10 per cent of electricity production. Peabody has said it anticipates demand in the U.S. alone to drop by 60 to 70 million tonnes this year as the recession takes a toll on energy demand. The company also suspects that demand for metallurgical coal could drop by 40 million tonnes as global steel manufacturing is expected to decline by as much as 20 per cent.

“The global economic crisis has put everyone in unchartered waters,” said Peabody Chairman and CEO Greg Boyce. Now after Obama’s election many in the coal industry may feel their without a compass as well. There are growing concerns amidst some industry players that the new administration’s greener energy policies may displace King Coal as the nation’s top energy producer.

“Obama’s going to want to go towards independent energies, so there’s a lot of potential for wind, solar, geothermal and run of river; but coal is going to be the ugly duckling,” said senior editor of Casey Research’s Energy Division Marin Katusa in an interview with The Energy Report. Katusa warns that as demand for greener energy sources increases due to “hype, psychology and incentives,” many coal companies will see their share prices fall.

However, Katusa believes the renewable energy revolution will be short lived and the nation will once again turn to coal for the majority of its energy needs. “The reality is a lot of these companies will not be able to deliver on the purchasing agreements,” said Katusa. “At that point  . . . they will have to turn back to the old reliable dirty energy.” In four to six years from now Katusa predicts clean coal furnace technologies will be a reality and coal will once again be “in vogue.”

Some industry analysts are confident that the Obama administration’s planned stimulus package, which includes spending on infrastructure projects, will generate growth in the steel industry. And this is welcome news for companies like Peabody who mine metallurgical coal and who’ve seen their share prices plummet on weakening demand.

The coal industry has managed to remain healthy despite the heavy toll the global recession has taken on the mining industry in general. The coal sector is “coming off a year of record contract pricing and can boast a relatively strong collective balance sheet, taking some of the past pressures out of the equation,” said Dahlman Rose & Co. analyst Daniel Scott.

Global construction equipment manufacturer Caterpillar has said its business with the coal mining sector has “held up” better than others. In fact, the company reports it’s “a little bit more bullish on coal” looking forward for the year than on “metals, minerals and quarrying.”

Despite the global downturn’s impact on this year’s coal demand, Peabody Energy is also maintaining a confident outlook. “We believe that inventories will rebalance, steel demand will recover, new coal plants will come on line and existing plants will run at higher utilization, while difficult geology and lack of capital access will deplete supply and limit infrastructure development,” said Chairman and CEO Greg Boyce.