Wed, 12 Mar 2008

Merrill Lynch has raised its forecasts for contract prices of coal for power plants and steel mills in 2008, predicting that prices will jump by as much as 200%, after recent supply disruptions resulted in a severe global shortage, Reuters reported Friday (7/3/08).

Contract prices for coking coal, used to make steel, are expected to reach a record high of $300 a ton, a three-fold rise from an agreed price of $98 last year, amid a "supply apocalypse" following recent weather-related supply disruptions in Australia, Merrill Lynch said in a research note.

Japanese utilities, such as Chubu Electric Power Co, may need to pay miners in Australia $135 a ton for coal contracts in fiscal 2008 beginning April, up 143% from last year's agreed $55.65, Merrill Lynch said.

Merrill Lynch had previously forecast 2008 thermal coal prices at $80 per ton.

"There is now an obvious scramble for supply with industry sources confirming that Asian steel mills are begging for tons at close to any cost," Merrill Lynch said.

"Under current market conditions, spot prices reflect the 'hysteria' of the supply shortage and therefore spot appears a reasonable guide for contract settlement."

As for thermal coal, Merrill Lynch said recent supply disruptions from Australia, China and South Africa, combined with powerful Asian demand, would result in supply deficit of 60 million tons for thermal coal this year.

The thermal coal market is expected to be under-supplied for the next three years as key export countries struggle to expand their port facilities, Merrill Lynch said.