Mumbai: The outlook for coal is becoming increasingly dark with several recent events that have resulted in prices of thermal coal, coking coal and coke soaring. It is not demand, but the potential of supply disruption that has darkened the prospect.
The market has been heating up of late, with spot prices for coal and coke reaching record levels. Now, renewed threat to supplies is creating panic in major user industries such as steel. Currently, countries as far apart as Australia, South Africa and China are all affected by different sets of factors.
South Africa
Severe power shortage in South Africa has led to forced cuts in power supply to major industrial units such as coal, mining (gold and platinum), ferroalloy and metals industries, resulting in reduction of supplies.
In case of coal, only the export operations are affected though.
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How soon the crisis would be resolved is hard to tell, according to industry representatives.
China
China is facing severe shortage of coal and power. This has led to imposition of temporary restrictions on Chinese coal exports. In Australia, major floods in Queensland have severely disrupted supplies of coal, mainly coking coal for the steel industry and also thermal coal.
This unusual combination of events that has the potential to disrupt supplies has pushed market prices higher.
F.O.B. prices
Analysing the situation, Macquarie Research Commodities in its latest report said that even before the recent developments, spot prices for coal and coke were at record high levels; and another major rise has occurred in the past week.
Coke has soared to $500 a tonne free-on-board (f.o.b.) China; thermal coal to $104/t f.o.b. Australia and $110/t f.o.b. South Africa; and coking coal has been offered at $210/t f.o.b. Australia.
Opinion that a coal crisis is looming is gathering.
All these prices suggest that the outcomes of current price negotiations for annual contracts could be settled at much-higher levels than previously thought, an analyst pointed out.
Implications
What are the other implications? These disruptions are likely to reduce steel production due to the likely chronic shortage of coke and coking coal.
This could keep the upward momentum in steel prices intact. The shortage of steel in West Asia could get worse, according to Macquarie.
On the other hand, these developments make the short-term outlook for the freight market far from bright. Freight rates could get weaker, as more ships are being pushed into the spot market following cargo cancellations.
The market has been heating up of late, with spot prices for coal and coke reaching record levels. Now, renewed threat to supplies is creating panic in major user industries such as steel. Currently, countries as far apart as Australia, South Africa and China are all affected by different sets of factors.
South Africa
Severe power shortage in South Africa has led to forced cuts in power supply to major industrial units such as coal, mining (gold and platinum), ferroalloy and metals industries, resulting in reduction of supplies.
In case of coal, only the export operations are affected though.
• Quarterly results of corporates: Check out
How soon the crisis would be resolved is hard to tell, according to industry representatives.
China
China is facing severe shortage of coal and power. This has led to imposition of temporary restrictions on Chinese coal exports. In Australia, major floods in Queensland have severely disrupted supplies of coal, mainly coking coal for the steel industry and also thermal coal.
This unusual combination of events that has the potential to disrupt supplies has pushed market prices higher.
F.O.B. prices
Analysing the situation, Macquarie Research Commodities in its latest report said that even before the recent developments, spot prices for coal and coke were at record high levels; and another major rise has occurred in the past week.
Coke has soared to $500 a tonne free-on-board (f.o.b.) China; thermal coal to $104/t f.o.b. Australia and $110/t f.o.b. South Africa; and coking coal has been offered at $210/t f.o.b. Australia.
Opinion that a coal crisis is looming is gathering.
All these prices suggest that the outcomes of current price negotiations for annual contracts could be settled at much-higher levels than previously thought, an analyst pointed out.
Implications
What are the other implications? These disruptions are likely to reduce steel production due to the likely chronic shortage of coke and coking coal.
This could keep the upward momentum in steel prices intact. The shortage of steel in West Asia could get worse, according to Macquarie.
On the other hand, these developments make the short-term outlook for the freight market far from bright. Freight rates could get weaker, as more ships are being pushed into the spot market following cargo cancellations.
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