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Iron ore and metallurgical coal are treated as two sistercommodities in the steel industry as both are necessities. Back inJanuary, Jeremy from Brean Murray Carret & Co. pointedout the strong demand of metallurgical coal from China will push theprice much higher than expected in 2010.
Well, recently Japanagreed to a 40% jump in iron ore price in a negotiation with BHPBilliton (BHP), and it is widely expectedthat the metallurgical coal price will see a 55% jump in 2010 to$200/ton from $129/ton in 2009. Chinese steel makers are rushing tosecure the 2010 metallurgical coal supply according to the latest Chinese news. Goldman Sachs also came out predictingfundamental improvement in metallurgical coal demand and upgraded coalnames such as Alpha Natural Resource (ANR), Arch Coal (ACI), Massey (MEE), and Patriot Coal (PCX).
The reason behind the strongdemand from China is that there are no high quality domesticmetallurgical coal producers in China and the quality of the coking coalis critical to producing high quality steel. China's ambition to buildthe nation's high speed railway network will put a high base formetallurgical demand from overseas. A major exporter like Alpha Naturalis seeing tremendous demand from China and other Asian countries. It isestimated that China alone will demand well over 100 million tons metcoal annually. The list below illustrates the expected shipment of metcoal for major US coal producers (based on recent management 2010guidance).
Disclosure:Long BHP, ANR, MEE, ACI
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