The massive disruptions to Australia’s coal mining in the past month—mainly due to the worst flooding seen in the region in 50 years—have been devastating for the industry, causing the price of coking fuel used in steelmaking to skyrocket.
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.
Coal stocks have been hit hard in this recession, given slumping electricity demand in the U.S. and the sharp drop-off of steel demand. For shareholders of Patriot Coal Corp (PCX: NYSE), the pain has been particularly acute. The stock lost 96 per cent of its value since last June's record highs. This year alone, Patriot's stock is down 41 per cent versus a 1 per cent decline by the Dow Jones U.S. Coal Index.
Indian steel makers are reluctant to finalize annual contracts for coking coal for 2009-10 as they are trying for a price below USD 100 per tonne against a high of USD 300 a tonne in 2008. For full story, click here
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.
Rio Tinto 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 percent are a dark sign of things to come for coking coal miners.
There’s no denying the worldwide recession has led to global cutbacks in the demand for most commodities, coal included. Coal producers like Peabody Energy have been forced to curtail production as demand slumps from both the steel industry and the energy sector.
Supply and demand of coal is expected to be a bit more important in 2009, with the almost irrational movement along with crude oil turning out to be less of an influence.
Steel manufacturers, both in private and public sectors, have started renegotiating coking coal prices with overseas suppliers, mainly those in Australia, in view of present economic slowdown hitting the steel industry. For full story, click here
Get our independent commentary on coal trends and companies delivered to your inbox.
