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Expert predicts price of coal to rise with strong demand - Nov 22, 2012
Demand for Met Coal in China Expected to Rise as ..... - Oct. 16, 2012
Analyst sees uptick in metallurgical coal prices - Oct. 11, 2012
US export executive sees Q2 2013 met coal recovery - Sept. 20, 2012
Why Coal Stocks Were On Fire Today!-Sept. 7, 2012
U.S. miner Consol sees steelmaking coal prices up-2013-Sept. 6, 2012
- Why Everyone Should Be Investing in Met Coal right NOW!
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- JAPAN CRISIS!
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- WHY MET COAL IS HOT - The Unexpected Crisis in Coal
- CATERPILLAR TO BUY BUCYRUS FOR $7.6 BILLION - 11/15/10
- Metallurgical Coal Update - 9/21/10
- An Overview Of Future Demand And Prices Of Coking Coal
- COKING COAL
- U.S. ENERGY ADMINISTRATION REPORTS LINK
- PREPARE NOW FOR THE MET COAL SURGE
One of our investors sent us this article from an online research group.
By the Casey Research Energy Team - 2011
Coal prices are surging ahead even as most other commodities pull back, spurred on by expectations that metallurgical and thermal coal production will again fail to meet rising global demand this year. The result? Record profits for major coal producers like Xstrata, a surge in acquisitions from coal-hungry India, Chinese electricity shortages, and a raging carbon tax debate in Australia amid record investments in that country's coal-heavy mining sector.
The price spikes in the second half of 2008, which were completely unsustainable and disappeared rapidly in the recession, distort the picture. So instead, imagine the above graph without those peaks. What you get is an almost sustained ascent in the spot prices of thermal and metallurgical coal over the last four years. Metallurgical coal, which is used to make steel and is also known as coking coal, has almost doubled in price, climbing from just above US$80 per ton in mid-2007 to more than US$160 per ton today. Thermal coal, which is burned to generate electricity, has risen from the US$45 per ton range to almost US$80 per ton.
Those countries with coal should count their blessings.
The Energy Information Administration (EIA) forecasts worldwide demand for coal to rise to 175.2 quadrillion Btu’s in 2025 from an estimated use of 140.6 quadrillion Btu’s in 2010, an increase of 24.6%. Meanwhile, the mining industry has barely been able to keep up with the increase in global demand in recent years. In 1990, total world demand was 89.2 quadrillion Btu’s, while total world production was 91 quadrillion Btu’s, creating a surplus of 1.8 quadrillion Btu’s, or just over 2%. By 2006, the last year for which complete production figures are available, global demand had climbed to 127.5 quadrillion Btu’s, while global output had risen to just 128.49 quadrillion Btu’s – a surplus of just .99 quadrillion Btu’s, or .77%.
Considering the increasing worldwide restrictions on mining operations, the shrinking likelihood of new coal discoveries, and the fact that coal grades are declining in their energy content, it’s hard to see where another 35 quadrillion Btu’s worth of coal is going to come from without the enormous investment and buildup in mining activity. There’s no doubt that going forward the market will become increasingly tighter. Therefore sudden disruptions in the supply chain, such as what recently happened due to the flooding in Australia, will cause major price movements upward.
What is also very important to consider is what the EROEI ratio is. EROEI stands for Energy Returned on Energy Invested. The reason as to why consumption and production have been described in terms of quadrillion Btu’s rather than the much simpler and more straightforward tonnage, is because there are significant differences in the quality of coal.
Essentially, coal comes in several different grades. The most desirable grade is shiny, hard, black anthracite coal. It yields the most heat when burned, has low moisture content, and is highly valued in the steel-making industry. After anthracite comes bituminous coal, offering slightly less energy per pound of weight, and then subbituminous, and then finally something called lignite (aka “brown coal”), which is low energy, high-moisture stuff that really has no use besides burning.
The following graph shows the United States’ history with mining coal, separated out by the different grades:
After anthracite, mining efforts focused on the next-best stuff—bituminous coal—and we find that a peak in the production of bituminous coal was hit in 1990. Was this because coal companies lost interest in the next-best grade of coal? Hardly. It simply means the US has started to run out of bituminous coal as well. Naturally, mining efforts moved on to the next-best grade after that, subbituminous coal, which has been making up the difference to allow U.S. domestic production of coal to continue steadily growing. Most recently lignite has been getting into the game. Once subbituminous coal peaks, which someday it will, we will then most likely see lignite take off.
Metallurgical coal (also called met coal or coking coal) is a high-grade coal that is used in making steel. Due to major supply and demand factors, met coal is fast becoming a prized strategic asset.
Met coal prices go for roughly three times the price of coal used to generate electricity. Steelmakers are willing to pay a lot of money to secure it. And producers of met coal are in high demand, judging from the mergers and acquisitions this year alone:
Rio Tinto offering $4 billion to buy out Riversdale Mining.
Arch Coal offering $3.4 billion for International Coal Group.
Alpha Natural Resources buy out of Massey Energy for $8.5 billion.
Chinese, Indian and Brazilian steelmakers have expanded capacity and built many new mills along their coastlines ready to import met coal. China doesn’t have enough and has been a net importer since 2009. India suffers from chronic shortages of met coal, and Brazil will also have to import a lot. Japan, which is already the world’s #1 importer, will be ramping up imports in order to re-build after the earthquake.
Currently, the big exporter is Australia. However, various bottlenecks have emerged there, including delays in port infrastructure projects and flooding issues. The second-largest exporter is the U.S. Though the U.S. has by far the most met coal reserves in the world, it will have a hard time increasing exports drastically due to infrastructure and logistical issues. Limited rail and port capacity is essentially capping U.S. exports at around 120 million tons (this represents the entire coal export market; met coal is just a small fraction of that).
Over the past year, met coal prices have been pushing higher very aggressively. Again, basic supply and demand is causing the price moves.
BHP Billion, a $235 billion international resource company, has been pushing its customers to agree to monthly contracts, rather than quarterly contracts, due to the overall bullish trend in the met market.
It’s imperative to understand that nothing goes up in a straight line, metallurgical coal prices included. However, the bullish trend in met coal prices is very sustainable, and going forward met coal prices will be heading higher. Corrections will be shallow, and moves upward will be powerful.
High Energy: Long-Term Supply and
Australia sells roughly 80 percent of its black coal production to overseas markets, making it the world’s leading exporter of the commodity. The country accounts for more than half of the international trade in met coal, the variety used in the iron and steel industries. As you can see in “After the Flood,” the average weekly price of Australian hard coking coal has skyrocketed in the wake of the devastating floods.
In the near term, these elevated prices ensure that producers such as Peabody Energy Corp (NYSE: BTU) don’t suffer too much from decreased output. But the long-term growth story also remains attractive: Demand for Australian met coal will only increase as emerging Asian economies continue to develop.
In fact, according to Peabody Energy, global consumption of met coal will grow by 600 million metric tons over the next 10 years, with demand in China and India leading the way. As the coal super-cycle unfolds, the price of Australia’s high-quality met coal will continue to climb.
Investors should continue to add exposure to names that will benefit from tightening supply and demand in the global oil and coal markets. Not only will this strategy pay off over the long term, but as recent developments suggest, any temporary hits to supply can also lead to impressive short-term returns.
“The rebuilding process will drive demand for cement, timber, steel, copper, aluminum, coking coal and telecom equipment,” wrote analysts at UOB Kay Hian Holdings Ltd. in a research report today.
For the rest of the story click the link below:
Massey Energy shares rally on buyout deal
January 31, 2011
“Massey Energy Co. shares rallied Monday, surging after Alpha Natural Resources Inc. agreed to buy the metallurgical coal producer at a premium in a cash-and-stock deal valued at $8.5 billion
Alpha Natural said it will emerge with reserves of 5 billion tons -- one of the world's largest holdings of metallurgical coal, which is used for making steel.
Prices for metallurgical coal have risen this year after flooding of coal mines in Australia. Demand for steel is also on the rise as economic growth picks up steam in the developing world and elsewhere.
"Together we will be America's largest supplier of metallurgical coal for the world's steel industry and a highly diversified supplier of thermal coal to electric utilities in the U.S. and overseas," Alpha Natural CEO Kevin Crutchfield said.
The transaction is expected to close in mid-2011, subject to approval by each company's stockholders as well as regulatory clearances.”
Rio Tinto Now Needs Riversdale Approval For Takeover
January 21, 2011
Rio Tinto PLC (RIO.LN) said Friday the Australian Treasurer approved its takeover bid for Riversdale Mining Ltd. (RIV.AU) and now the company must woo Riversdale's board to close the deal. ?The Australian approval was the main regulatory hurdle the miner needed to clear for its A$3.9 billion offer for Riversdale made toward the end of last year… Riversdale has 13 billion metric tons in coking and thermal coal resources, key materials in the steel production process, in its Benga and Zambezi projects in Mozambique
Published: November 2010 (with references)
On Saturday night, May 8, 2010, a coal mine in western Siberia was rocked by a methane explosion. Officials of the Raspadskaya Coal Company, which operates the mine, confirmed 43 people dead, 7 in critical condition in the hospital, and 47 more still missing. As described by Business Insider (1) at the time, about four hours later, 19 rescue workers were making their way through the mine when a second blast killed them all and incapacitated the deep-tunnel ventilation system. Worse yet, the water level in the mine began to rise. By the following week, the Russian news agency RIA Novosti (2) was reporting 66 confirmed dead, 100 injured, and 24 people still missing. Shipments of coal from the mine were immediately cut by 70 percent and rescue attempts had been suspended in the face of high levels of methane gas. That single mine represented 10 percent of all the coal in Russia. Restoring the mine to its previous operating level was expected to take at least a year and cost $200 million. The explosion took 65 percent of Russian coal off the market for steel mills and export clients.
This took place, according to The Financial Express, (3) just as authorities in India were reporting a shortfall in coal mining output and predicting shortages at India's coal-fired power plants and subsequent summer blackouts. At one point during the summer of 2010, 17 power plants in India had only a seven-day supply of coal on hand, while 15 others could run for just four days on available supplies. The standard is to have enough coal in stock to run the plants for between two weeks and one month. The authorities had the money to buy additional coal, but found that supplies were not available on the export market.
As reported by Bloomberg News, (4) India and Russia are not alone in facing coal shortages. As the largest consumer of coal in the world, China has added so much capacity for generating electricity, producing steel, and processing metal in recent years that it couldn't get enough coal to meet the demands of the coldest winter in half a century in 2009. China's $586 billion stimulus package, intended to encourage spending, also increased the demand for energy. In the face of that demand, coal prices rapidly rose by 40 percent.
According to Business Line, (5) China has been a net importer of coal for more than two years — and imports to China more than doubled in 2009.
India gets 75 percent of its coal from Indonesia. Although India has domestic supplies of coal, it has infrastructure problems in moving it and its coal is of a lower quality that produces less heat, and therefore, commands a lower price. Indonesian coal, for example, produces twice as much heat per ton as Indian coal.
With the Chinese economy expected to grow four times faster than the U.S. economy in 2010, the demand for coal — which produces 80 percent of the electricity that is used in China — can only grow.
According to Stansberry Associates, (6) China represents a surprisingly big threat when it comes to the sustainable — and affordable — use of coal in the United States for producing electricity. Demand for electricity in China is growing by nine percent a year. It has tripled its electrical generation capacity in the last 10 years. Already, China burns three times as much coal as the United States, but it possesses just half the reserves. In fact, its reserves represent just 16 years of consumption at its present growth rate. China is building new coal-fired power plants at a rate of one a week, with no end in sight. Meanwhile, since 1990, the United States has built just twelve new plants.
China now gets most of its coal from Australia, consuming 60 percent of that nation's production. With China's electrical production expected to double again by 2018, it will then consume all of Australia's available coal output. Unless it shifts to nuclear, or some other dramatically different energy source, China's demand for coal will eventually equal the entire global production capacity.
India's demand is growing at the same rate. Today, about 70 percent of its electricity comes from coal, and a lot of that comes from its inferior domestic supplies. Even so, its imports of coal from South Africa increased 74 percent in 2009.
This enormous upward leap in global energy demand is primarily driven by the 600 million people, roughly equally divided between China and India, who are rapidly becoming "middle-class" consumers.
But, there are supply-side factors that make the coal picture even more daunting. As the Russian mining disaster reminds us, mining coal is a dangerous business. When disaster strikes — and sooner or later it always does because of the flammable nature of the materials involved — coal production stops.
Massey Energy is the largest coal mining company in the coal-rich Central Appalachian region of the United States and is a global exporter. According to The New York Times, (7) just a month before the Russian disaster, 25 miners died in a methane explosion at the company's Upper Big Branch mine. The mine and its parent company have a long and dismal safety record, which is the norm for coal mining operations. It has paid some of the largest penalties in history as a result. In the aftermath of that disaster, the mine closed and has not reopened. This puts yet more pressure on coal supplies and prices.
Exploding demand and constricted supply are leading to a dramatic price increases. As "the Saudi Arabia of coal," the United States will benefit to a large extent. The Peabody Energy Corporation, the largest producer of coal in the United States, is shipping coal to China, Korea, and Chile from the Powder River Basin in Wyoming, the largest and least expensive coal deposit on the continent. (8)
However, even the United States is not immune from the effects of this growing crisis. The two largest power companies in America — American Electric Power and Southern Company — are being run on ever-increasing levels of debt that could foreshadow bankruptcy. They can't stand a large increase in the price of coal. Southern Company, for instance, hasn't had any real income since 2006. The company lost $238 million that year. By 2009, it had lost $1.5 billion. It has only been able to keep up its cash dividends to shareholders by borrowing about $12 billion since 2006. The expense of servicing that debt alone is nearly a billion dollars a year. Factoring in capital expenses to keep aging operations running, the company has to earn five billion dollars just to stay afloat—and before any profit is made. The equations of its business — selling electricity at market rates — show that goal is an impossibility. And that's the situation without any further increase in the price of coal.
In the medium term, the price of coal can only go up. That's frightening when you consider that between early 2009 and mid-2010 coal prices sky-rocketed 300 percent, and stockpiles of coal at U.S. power plants have fallen by 20.5 percent in the last year.
What do we anticipate given this looming crisis? We offer the following forecasts for your consideration.
First, India will face a coal shortage of at least 15 percent over the next 18 to 24 months. It's already laboring under a 10 percent annual shortfall. While the rate at which the people of India use electricity is growing around 10 percent a year, the rate of growth in coal production languishes at between five and six percent. Coal India Limited, which accounts for more than 80 percent of all the coal mined in India, is hampered in expanding its production because of inadequate infrastructure, such as railroads and loading facilities, and is stalled in about 17 new projects because of environmental permissions for new mines that have not been forthcoming. In fact, India still has enough coal in the ground to satisfy its domestic demands, at least for a few years going forward. But owing to antiquated bureaucratic systems, companies there have not moved to build the infrastructure and open those mines that have already been allotted. India represents a major investment opportunity for a company or consortium that can come in and untangle that snafu.
Second, China will face a critical shortage of coal. During the hard winter of 2009 to 2010, the factories of the coal-rich province of Shanxi experienced rotating blackouts to keep residential customers supplied with heat. Although Shanxi is home to a third of all of China's coal, it, like India, does not have the infrastructure to ramp up production. In addition, according to China Daily, (9) it has a contractual obligation to supply other parts of the nation. As the largest producer of steel in the world, China also faces a severe shortage of coking coal, the type of coal used in steel production. As a result, according to Bloomberg, (10) China is poised to enter a fight with Japan and South Korea for that resource. Unfortunately for Korea and Japan, China has proven itself skilled at "cornering markets" and controlling resources. In the last year, China increased imports of coking coal by a factor of 12. It is now ramping up efforts to siphon off all of the available coal for sale from exporters. Look for the price for coking coal to rise between 23 and 38 percent as the economic recovery continues. Thermal coal for heating will rise, but not quite as sharply, going up about 14 percent in the next year.
Third, the Australian coal industry represents significant investment opportunities going forward. Australia controls the world supply of coking coal, which will experience a significant global shortfall within the next five years. At present, 62 percent of coking coal comes from Australia. Its coking coal is well-placed for shipment and well-explored, putting Australian companies in the leading position in this industry. Increasingly, that nation will dictate the terms, including amounts and prices. Expect profits to boom for those Australian firms in the coming years.
Fourth, steel prices will rise sharply. Since coking coal is essential to steel making, the increase is inevitable. That means that everything from cars to construction will cost more. According to the Guardian, (11) British manufacturers that make components for automobiles have already seen a 20 percent rise in the price of steel and expect it to continue. They will have to try to pass those costs on to customers. Many contractors for large construction projects have already agreed to supply their clients steel components at a pre-arranged price. Those agreements could see them facing steep losses while future projects may be put on the back burner.
Fifth, coal represents a good investment opportunity for the sophisticated — but let the buyer beware. Some companies that look attractive at first blush, such as Massey Energy, may already be overpriced, while others like, Arch Coal, that seem to be high, may have abundant growth ahead. A careful analysis of a company's stock price relative to real growth of operating cash flow will give a clearer picture of upside potential. Given this caution, however, a great deal of wealth is going to be made in the coming years from investing in coal and related businesses.
(1) Business Insider, May 11, 2010, "Methane Blast Post Mortem: coking Coal Shortage Looms as Raspadskaya Mine Toll Rises," by John Helmer. © Copyright 2010 by Business Insider, Inc. All rights reserved. http://www.businessinsider.com
(2) RIA Novosti, May 20, 2010, "Raspadskaya Coalmine Director Formally Charged." © Copyright 2010 by RIA Novosti. All rights reserved. http://en.rian.ru
(3) The Financial Express, July 10, 2010, "Acute Coal Shortage Fuels Blackout Fears," by Indronil Roychowdhury. © Copyright 2010 by The Indian Express Limited. All rights reserved. http://www.financialexpress.com
(4) Bloomberg.com, February 22, 2010, "Coal Rally on Chinese Demand Sparks $59 Estimates (Update2)," by Mario Parker. © Copyright 2010 by Bloomberg LP. All rights reserved. http://www.bloomberg.com
(5) Business Line, April 21, 2010, "Coal Prices Rise on China, India Demand," by Vishwanath Kulkami. © Copyright 2010 by The Hindu Business Line. All rights reserved. http://thehindubusinessline.com
(6) DailyWealth.com, August 12, 2010, "How to Hedge Yourself from the Coming Fed Disaster," by Porter Stansberry and Braden Copeland. © Copyright 2010 by Stansberry & Associates Investment Research. All rights reserved. http://www.dailywealth.com
(7) The New York Times, April 9, 2010, "No Survivors Found After West Virginia Mine Disaster," by Ian Urbina. © Copyright 2010 by The New York Times Company. All rights reserved. http://www.nytimes.com
(8) Bloomberg.com, June 24, 2010, "Peabody Energy Sees Global Coal Demand at the Beginning of a 'Super Cycle,'" by Mario Parker and Noah Buhayer. © Copyright 2010 by Bloomberg LP. All rights reserved. http://www.bloomberg.com
(9) China Daily, January 9, 2010, "China's Coal-Rich Province Rations Power Amid Icy Weather." © Copyright 2010 by China Daily Information Co. All rights reserved. http://chinadaily.com.cn
(10) Bloomberg.com, December 18, 2009, "China's coking Coal Shortage to Spur Demand Fight (Update1)," by Bloomberg News. © Copyright 2009 by Bloomberg LP. All rights reserved. http://bloomberg.com
(11) Guardian, April 1, 2010, "Industry Fears Steel Price Hike Will Derail Recovery," by Katie Allen. © Copyright 2010 by Guardian News and Media Limited. All rights reserved. http://www.guardian.co.uk
The demand for metallurgical coal is tied to the level of activity in the steel industry as this commodity is used in the process of making steel. Metallurgical, or coking, coal is first converted to coke through heating the coal in an oxygen free environment. After the coke is produced, it is added to iron ore in another high-temperature environment to produce iron. Every ton of steel made in a traditional blast furnace requires 0.6 tons of metallurgical coal, according to the World Coal Institute. Approximately 66% of all steel is manufactured using this method.
The global production of steel in July, 2010 totaled 115 million metric tons, a 9.6% increase on a year-over-year basis. Capacity utilization was 75.1% in July, 2010, up on a year-over-year basis, but a sequential decrease from capacity utilization of 80.4% in June, 2010.
World seaborne or export demand for metallurgical coal is expected to increase 20% in 2010 over 2009, with strong demand coming from Asia and South America. The largest importers of metallurgical coal in 2010 include China (44 million tons), India (30 million tons) and Brazil (14 million tons). Japan, Korea and Taiwan will require another 94 million tons in 2010.
World seaborne supply of metallurgical coal is expected to increase by 13% in 2010 over 2009, with supply growth coming from the United States and Australia. Many companies have been adding capacity. Massey Energy (NYSE: MEE) recently announced that the company was developing a new mine to produce metallurgical coal in West Virginia. The company will spend between $100 million and $160 million through 2012 at the Rowland reserve.
The recent benchmark price for metallurgical coal was $209 per metric ton, with analyst forecasts of prices for 2011 between $190-275 per metric ton. The mean price forecast for 2011 is $221 per metric ton.
As a result, there has been a steep rise in the demand as well as price of coke in the past couple of years. Considering the demand of coking coal buyers, one can expect the trend to continue for the years to come. Here is a discussion about the present trends and future expectations of coking coal prices and demand.
One country that has significantly contributed in the rise of coke price is China. The country’s total steel production is over 600 metric tones per year at present. This certainly has added to the demand of coking coal to keep the steel production up and going. In the year 2009, China imported more than 30 metric tones of coke. This steep rise in the demand has enforced the coke prices to shoot up. It is amazing to see the coke prices to rise from $129 to $200 per ton within the difference of a year.
After China, the second country that has experienced an increase in the demand of coking coal is India. Though, the country’s steel production of 60 metric tones per year is nowhere near to that of China. The country’s steel production growth rate is higher than that of China and this has raised the expectation that total steel production in the country will double by 2012. And the experts in the industry firmly believe it to cross 200 metric tones a few years later. This will certainly led to increase in the demands of coking coal buyers from the country.
As far as the European countries and those in the American continents are concerned, they are too expected to raise their demand for coke. Coke is used as the most preferred smelting agent for the blast furnaces in these countries. The period of recession definitely had an adverse effect on the import of coke by these countries. As the period of recession is getting over, these countries should again start importing more of the coking coal.
Another important development in the industry is that the annual contracts have been shifted to quarterly contracts. BHP of Australia, the largest mining firm in the world, has recently entered into first such contract with JFE Steel of Japan. According to the contract, the coking coal prices are set at $200 per ton. The trend of quarterly contracts is further going to push the coking coal prices upwards. So, those indulged in coal mining and coke production are expected to make great profits in the near future.
You can expect the prices per ton of coking coal to touch the mark of $300. Besides, the rise in the demand of coke would keep on putting pressure on the global supply and demand lines.
Coking coal accounts for about 70% of the world's steel production. The coal is carbonized in the Blast furnace to produce Coke. The important specifications that require to be kept in mind include Ash, Volatile Matter, Sulphur and Phosphorus content of the Coal, Swelling Indices, dilatation, fluidity and reflectance in assessing its suitability for steel production. In the year 2000, the sea-borne metallurgical coal trade figures stood at approximately 180 million tons, with Australian coal account for the largest share at nearly 100 million tons.
This coal is used as a Source of Carbon, for converting a metal ore to the metal itself. This "Smelting" process, involves removing the Oxygen in the Ore by combining it with the Carbon in the Coal to form CO2. This involves burning the coal, which supplies the necessary heat to reduce the ore, and also to melt the resultant metal, helping to separate it from any slag produced in the process. Many thermal coals can also be used for metallurgical purposes.
PCI - Pulverized Coal Injection
The technology, known as PCI (Pulverized Coal Injection) for Steel Production has gained increasing acceptance since 1964. PCI coal is injected into the Blast Furnace, reducing the requirement for expensive Hard Coking Coals. Here low ash and Low Phosphorus content coals are being used. Low volatile coal is predominately sold to steel mills for use in the production of Pig Iron from iron ore in the blast furnace process. Steel mills may also use a small amount in the coke blend.
Individual plants have their own specification limits but usually all types of coal can be injected into the blast furnace. Low ash, low sulphur, low moisture and low phosphorus, though not mandatory, are desirable characteristic in the coal.