prices expectations--SalmanCommodity Strategists: Coking-Coal Forecast Reduced by Salman
Nov. 1 (Bloomberg) -- Coking-coal prices may fall 12 percent in 2006 as steelmakers in China trim imports of the material used in blast furnaces, Salman Partners Inc. said.
Coking coal, which is transformed into coke for making steel, may fall to $110 a metric ton in the year beginning April 1, down from $125 this year, Ryan Crowther, an analyst at Vancouver-based Salman, said in a report on Oct. 28. Annual contract talks between producers and buyers for next year are just getting started.
``The urgency of the purchases seen in 2004 is not apparent as we enter the current negotiating season,'' Crowther, 30, said. He has worked at Salman for three years. He graduated from the University of British Columbia in 1999 with a Bachelor of Commerce.
Fording Canadian Coal Trust, co-owner of the world's second- biggest producer of coking coal, said on Oct. 25 that some buyers in China imported less than expected this year, opting to purchase cheaper supplies from mines in the country. Fording said Elk Valley Coal Partnership will sell 25 million tons this year, down 7.4 percent from a January forecast of 27 million tons.
Fording, based in Calgary, owns 60 percent of Elk Valley. Vancouver-based Teck Cominco Ltd. has the rest.
BHP Billiton Ltd., the world's largest producer of coking coal, Fording and Teck Cominco have benefited from increased Asian demand and high prices. Even at $110 a ton, coal prices still have doubled from $40 to $55 a ton from 1984 to 2003, Crowther said.
Salman, one of western Canada's largest independent institutional brokerages, expects prices to fall to $90 a ton in 2007, $70 in 2008 and to reach a long-term balance at $65.
`Worrying Signal'
Lower-than-expected shipments to China ``are a worrying signal'' to coal sellers, Greg Barnes, an analyst at Canaccord Capital in Toronto, said in an interview yesterday. Barnes on Oct. 25 reiterated Canaccord's forecast for coking coal prices at $110 a ton next year.
``New supply and a lack of significant supply disruptions'' this year may set the tone for coking-coal contract talks that usually wrap up in the first quarter, Barnes, 41, said. He was rated the top metals and mining analyst in Canada this year in a survey by research company Brendan Wood International.
Snow avalanches that buried some railway lines in Canada and other disruptions in Australia in 2004 contributed to higher contract prices this year, said Barnes, who graduated in 1986 from Queen's University in Kingston, Ontario, with a degree in geology.
Higher prices encouraged Elk Valley and other Canadian and Australian mining companies to boost production and capacity, Barnes said.
In China, plentiful supplies of coke, a substance combined with iron ore in the steelmaking process, may hurt coal prices, he said.
Steel Profits
Profit growth at Baoshan Iron & Steel Co., and other steelmakers in China is poised to slow because of excess steel inventories, falling prices and rising production costs. Shanghai- based Baoshan plans to cut prices of cold-rolled steel 8 percent and hot-rolled coil by 17 percent in the fourth quarter.
Steelmakers in China produce about a third of the world's steel.
The global supply of high-quality coking coal still remains ``tight,'' Gordon Eberth, Elk Valley's vice president of marketing, said on a Fording Canadian conference call Oct. 26 with analysts.
``We aren't seeing significant quantities of new coking coal supply entering the market as quickly as expected because of delays in getting equipment, building infrastructure and finding enough qualified people,'' he said.
Discoveries of significant new reserves of hard coking coal have been rare, Eberth said. ``Most new projects being considered are for lower-quality coal'' that sells for less than high-quality coking coal.
Ebereth, who declined to comment on details in the coal- contract talks, said his company is also seeing signs of increased demand for coal from developers of integrated steel mills and coke ovens in Brazil, Germany and India.
To contact the reporter on this story:
Christopher Donville in Vancouver at cjdonville@bloomberg.net.
Last Updated: November 1, 2005 07:09 EST