Melbourne: Goldman Sachs JBWere Pty Ltd, the Australian affiliate of the world’s largest securities firm, raised its contract coking coal price forecasts by 17%, stoking higher cash prices for the steel-making ingredient from India.
The annual contract price of coking coal may rise to a record $140 (Rs5,572) a tonne in the 12 months from 1 April, from $98 this year, the brokerage said. It had forecast $120 a tonne. Port and rail congestion in Australia, the world’s largest exporter of coal, have restricted supply as Asian demand surges. BHP Billiton Ltd, the world’s largest mining company, and rivals start talks with Japanese and Chinese steel makers to set annual contract prices for coking coal and iron ore this month.
Supply crunch: Shortage of the commodity has raised its contract price forecasts by 17%.
“We believe Australian coal suppliers are extremely well positioned to secure significantly higher contract prices,” Goldman analysts Malcolm Southwood and Paul Gray said in an 19 October report. There was “no quick fix in sight for the severe congestion afflicting Australian coal supply chains and no let-up in demand”, they said. Australian exporters recently sold coal to Indian buyers on the spot market at $165 a tonne, Goldman Sachs said in the report.
BHP’s chief executive officer Marius Kloppers had said last week that he hadn’t seen iron ore and coking coal in shorter supply. The Melbourne-based company increased sales to India by 56% in the six months ended June from a year ago, selling coking coal and metals.
Energy, or thermal coal, used in power stations, may rise 35% to $75 a tonne in 2008, from $56 a tonne this year, Goldman said.
The broker had forecast a price of $68 a tonne.
Heavy rainfall in Indonesia, the world’s largest exporter of energy coal, and port and rail congestion in Australia both curbed supply, the broker said. Asian power stations may engage in “panic buying”, and send the cash market for thermal coal to $80 a tonne, the report added.
The effect of higher forecast coal prices on the earnings of BHP and rival Rio Tinto Group will be more than offset by the rising Australian dollar, Goldman said.
A stronger Australian dollar, raising costs for BHP and Rio’s Australian mines, will more than erode the price gains, it added.