Rising Demand In Asia To Keep High Floor On Coal Prices

Coal prices on Wednesday plunged in Europe and the United States. European benchmark coal dipped by as much as $25 a tonne, to below $200, which sent U.S. benchmark coal falling by $20 a tonne.

Australian markets also got affected according to Dow Jones Newswires. The Newcastle spot coal price, where the world’s biggest thermal coal shipping port is located – fell sharply, following on from a 20% drop in spot thermal coal prices in Europe overnight. However, despite this latest pullback in coal prices, analysts say – that a sharp pullback in benchmark Australian thermal coal prices is only natural correction after a recent surge.

The price drop is seen as a partial retracement of gains experience in recent weeks when the spot coal price surged ahead of the recently agreed contract prices for Asian buyers of $US125 a metric tonne, and appears to be a temporary reversal.

Prices in Asia are also projected to stay high with all the indicators pointing to ongoing tightness in the market.

In May, China reverted to being a net coal importer, with imports exceeding exports by 250,000 metric tonnes, as local output failed to keep pace with demand. Between January fiscal ’08 and May fiscal ’08, China’s coal exports fell 4.1 per cent on year, to 18.5 million tonnes.

Vietnam said today it will reduce its coal exports by 10 million tonnes or 31 per cent this year to meet growing domestic demand. Currently a major coal exporter in the region, Vietnam has said it plans to progressively reduce its exports until 2015 when it plans to halt them altogether, as it redirects coal to domestic electricity generation to power its booming economy.

It is not surprising to see volatility in the coal market, but analysts believe the fundamentals will support prices at very strong levels into 2009. Yes, spot coal prices could ease in coming months, but infrastructure constraints in Australia (Australia is the world’s largest supplier of sea-borne coal) and rising demand in Asia are likely to keep a high floor on prices.

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