Asian coal prices may fall 20%

Asian coal prices may fall 20%

Angela Macdonald-Smith, Bloomberg/Sydney

Asian contract rates for coal used in power plants may fall more than 20 percent next year as Indonesia and rival mining nations raised output after prices surged, Australia & New Zealand Banking Group Ltd. said.

Japanese utilities such as Tokyo Electric Power Co. may sign benchmark 2006 purchase contracts at $42 a metric ton or less, from a record of $53 this year, Andrew Harrington, a resources analyst at the Melbourne-based bank, said on Dec. 20. ANZ Bank, Australia's third-largest lender, last week cut its forecast for 2006 contract prices from $49.

Spot prices at Australia's Newcastle, the world's biggest coal-export harbor, have fallen 39 percent from a record $63 in mid-2004, pulled down by rising exports from Indonesia, South Africa and Colombia.

Indonesia this year is set to overtake Australia as the world's biggest exporter of coal used in power plants, the Australian government's commodities forecaster says.

"The main thermal coal-exporting countries are all doing as much as they can in terms of exports, so there's been a strong supply response to the high prices," Harrington, 31, said in an interview.

"Anything in the $40s would be seen as quite a good result for next year's price as there's been a pretty strong decline" in spot prices, he said.

Coal is the world's second-biggest energy source, behind oil and ahead of natural gas. Annual contract prices for thermal coal between Australian producers and Japanese utilities, which run from April 1 to March 31, are yardsticks for other markets.

Indonesia may increase coal exports 7 percent next year to 119 million tons, Simon Sembiring, director general of mineral resources at Indonesia's energy ministry, said last week. Asian power-generation coal supplies rose 33 million tons this year, beating demand growth, coal researcher McCloskey Group said on Dec. 6.

PT Bumi Resources, Indonesia's largest coal exporter, will sell 45 million tons of coal this year, 25 percent more than last year, the Tex Report said on Dec. 1, citing the company.

The fall in spot coal prices is likely to discourage Chinese exports and further encourage imports, Deutsche Bank AG said in a Dec. 19 report.

China's total coal exports fell 28 percent in November, compared with November last year, while import rose 16 percent, the bank said. Chinese spot export prices fell below domestic prices in December, it said.

Australia's two biggest coal exporting ports, Newcastle and Dalrymple Bay, have introduced export-quota systems to cut queues of ships waiting to load. Miners such as BHP Billiton, Rio Tinto Group and Xstrata Plc export coal through the ports, both of which are expanding capacity to meet higher demand.

Even ANZ Bank's $42 estimate may be difficult to sustain, Harrington said. Contract prices may fall in the year starting April 1, 2007, to $38 and then to $35 the following year, Harrington said.

"Our official number is $42, but I think that's probably got some downside revision on its way," he said.

Xstrata, the world's biggest exporter of thermal coal, last month agreed to sell coal to Taiwan Power Co. in 2006 for about $40 a ton, which may drag down other contract prices, Citigroup Inc. said in a Nov. 10 report. That price was $5 less than Australian exporters had been seeking, the bank said.

ANZ Bank's 2006 forecast matches the estimate of Melbourne- based Goldman Sachs JBWere Pty.