Driven by surge in imports of coking coal by China, growth in Japanese steel output and signs of recovery in the Indian economy, spot prices of the raw material are expected to firm up in the international market.

Global prices of coking coal, which are currently hovering around
$160-170 a tonne, are expected to harden further and reach $200 a tonne
in 2010-11, says a report by Citi Investment Research and Analysis, a
division of Citigroup Global Markets Inc.

The report has projected the price of the semi-soft variety of coking
coal at $120 a tonne, up from the existing price of around $100 a tonne.

The sea-borne coking coal prices have sharply moved from $130 a tonne
to $160-170 a tonne in the past three-four months as Chinese imports of
the raw material have increased exponentially this year.

Coking coal imports by China are projected at 25.5 million tonnes this
year, a 269.56 per cent jump over 2008. The surge is attributed to a
dip in the country’s domestic production as it plans to close more than
4,000 small coal mines by 2010 to improve safety and drive
consolidation in the coal sector.

“The spot prices of coking coal in Australia have touched $170 a tonne
and this upward movement in prices is mainly due to an unexpected
growth in imports by China. In fact, imports by the country in the past
six months is comparable to what it usually imports in a period of 18
months”, said Ganesan Natarajan, president and chief executive officer,
Ennore Coke.

Ennore Coke, a domestic manufacturer of metallurgical coke, which uses
imported coking coal as the raw material, had settled its contracts for
2009-10 at around $130 a tonne with the international suppliers.
However, Natarajan ruled out any further hardening of prices and said
that premium hard coking coal rates in 2010-11 are expected to remain
at the current level of $170 a tonne.

Dipesh Dipu, principal consultant, Pricewaterhouse Coopers said, “The
coking coal prices in the short run, particularly in the second half of
the year, may depend on the impact of Chinese order for the smaller
mines to merge with the larger ones. The prices in 2011 are also
expected to be in line with the prevailing prices or may be a few
dollars higher than those of 2010.”

He indicated that the increase in global coking coal prices was set to
impact the operations of the domestic steel makers who heavily depend
on imports for their requirements.

Higher coking coal prices would mean greater contract prices for the
domestic steel makers and this is bound to impact their margins,
concurred Shashi Kumar, advisor (coal), NTPC and former chairman, Coal
India Ltd (CIL).

Apart from coking coal prices, the outlook for thermal coal prices is
also robust and the contract price for this variety of coal is
projected at $80 a tonne in 2010-11.

“The spot price for internationally traded thermal coal in the second
half of this financial year is likely to hover around $70 a tonne. This
may primarily be attributed to strength in demand from power producers
in emerging markets, including India”, said Dipu.

In the domestic market, CIL has sought a moderate hike in coal prices
as its average prices were 30-40 per cent cheaper than the prevailing
international prices. The prices of coal in India were last revised in
December 2007.

Source: Business Standard

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