Coal prices seen rebounding on demand from India, China

Written by Bloomberg | Updated: Apr 25 2012, 05:46am hrs
Coking coal prices are set to rebound as early as July from four straight quarterly declines as China and India seek raw material overseas to fire new steel production in the worlds fastest-growing major economies.

Contract prices that fell to $206 a tonne for the quarter ending June 30 may rebound to average $225 a tonne this financial year, based on the mean estimate of 10 analysts, steelmakers and mining companies surveyed by Bloomberg. Contracts of coking coal peaked at $330 in the June quarter last year.

China, the largest steel producer, is leading demand growth forecast at almost 10% this year. It started about 10 new blast furnaces in the past six months, lifting output to a record in March, according to market researcher Custeel.com. India, the third-biggest steelmaker, is set to boost capacity a third to more than 100 million tonne by March in a five-year $1 trillion plan to build roads, bridges and railway networks.

Rising Indian imports will have a positive impact on coking coal, said Natalie Robertson, an analyst at ANZ Banking Group in Melbourne. The near-term prices will more closely track development in China.

China may surpass Japan as the biggest coking coal importer by 2015, a position it may eventually relinquish to India, Robertson said.

China is encouraging global use of the yuan and allowing more overseas investors in its local capital markets as Premier Wen Jiabao seeks to shift the focus of economic growth to domestic demand from slowing export industries. The government broadened the yuans trading band against the dollar to 1% from its daily reference rate on April 16, having held the limit at 0.5% since May 2007.

BHP Billiton, the worlds biggest coking coal exporter, fell 0.7% to close at A$35.08 in Sydney. Rio Tinto Group (RIO), the third-biggest mining company, ended down 1.6% at A$65.60.

Growth in China slowed more than forecast last quarter to the least in almost three years, prompting economists to predict a rebound as the government loosens policy to counter weak domestic and European demand. Gross domestic product expanded 8.1% from a year earlier after an 8.9% fourth- quarter gain, the National Bureau of Statistics said.

Demand for imported coking coal in China may rise 37% to 63 million tonne this year from last year, Australias Bureau of Resources and Energy Economics said on March 21. Consumption is projected to increase due to state investment in steel-intensive infrastructure such as highways and rail networks, linking the less-developed provinces in western China to demand centers in the east, it said.

Urbanisation and infrastructure building in central and western China will fuel very strong steel demand, Fortescue Metals Group Chief Executive Officer Neville Power said on April 3. The 7.5% economic growth target Jiabao announced for this year, the lowest since 2004, may result in 5% annual increases in steel demand, he said.

Global trade in coking coal may rise 9.6% to 297 million tonne this year, compared with a 0.7% drop last year, the Bureau of Resources and Energy Economics said.

Mongolia, which became Chinas biggest supplier of coking coal in July, will probably continue to grow this year, Battsengel Gotov, chief executive officer at Mongolian Mining, said in a March 7 interview. For Europe, China, Japan and South Korea, the main tailwind for metallurgical coal is theres room for restocking across the world, Bloomberg Industries analyst Andrew Cosgrove said. China remains the wild card because Mongolia is stealing seaborne volumes by exporting more land-borne tonnages.

Aluminum Corporation of China said it will buy 29.9% of Mongolian coal exporter Winsway Coking Coal Holdings for HK$2.39 billion ($308 million) to boost earnings as its aluminum unit posts lower profits. The nations biggest producer of the lightweight metal, known as Chalco, will buy about 1.1 billion shares from Winsway Chairman and Chief Executive Officer Wang Xingchun and become Winsways largest shareholder, the Beijing-based company said.

Indias coking coal needs may jump 13 million tonne this financial year as its rising appetite for the alloy drives companies to add capacity worth at least $10 billion in the year that started April 1, said Ashish Upadhyay, associate director at Fitch Ratings in a telephone interview on April 9. Indian demand may support coking coal prices as most of the local requirements are met through imports, he said.

Last year, India imported 13% of the 271 million tonne of coking coal traded globally. Australia is estimated to have shipped 148 million tonne of the steelmaking ingredient in the year ended March 31, the Bureau of Resources and Energy Economics said in its March 21 report.

Coking coal prices touched a record last year after floods disrupted output and shipments from mines in Australia, the worlds biggest exporter of the fuel, said Arun Kumar Jagatramka, chairman of Gujarat NRE Coke, which owns mines in Australias New South Wales state. Prices have since declined as supplies were restored and demand waned in Japan and in debt- laden Europe.

Indian steel consumption may increase 8% during the year started April 1, faster than last years growth of 5.5%, fueled by investment in infrastructure projects and improving sales of automobiles, said GK Basak, executive secretary at the steel ministrys joint plant committee. Demand may improve as India reduces interest rates on loans, critical for developing industrial projects and buying homes, cars and appliances, said Tapan Ray, executive director for mining at PricewaterhouseCoopers in Mumbai. Coking coal prices may range between $220 and $230 a ton this year and may rise higher if a European recovery starts, he said.