Coal markets will remain robust this year, according to Xstrata, the mining group, which said China and India’s growing import requirements would support demand for both coking coal for steelmaking and thermal coal, used to generate energy.
Xstrata predicted imports of thermal coal would grow strongly in those countries where domestic supplies could not meet demand.
“Thermal coal spot prices are soaring,” analysts at Credit Suisse said. “The market is very tight due to the severe winter across Europe, China and the eastern US.”
Credit Suisse recently raised its average 2010 thermal coal price forecast to $90 a tonne, an increase of 28.6 per cent on the previous year.
Amrita Sen, analyst at Barclays Capital, said China and India’s import requirements could surprise the market as coal was the preferred fossil fuel for power generation in both countries.
“A jump in China’s power needs [due to cold weather] is imposing tremendous stress on its [energy] supply system, reflected in falling [coal] stocks at power generators,” said Ms Sen, who noted coal shortages had already led to power rationing in some parts of the country.
Both Barclays and Credit Suisse are concerned about the inability of coal supplies to react to rising prices due to bottlenecks in key exporting nations, South Africa and Australia, where port congestion and rail problems have not been resolved.
“The supply bottlenecks that plagued the coal market in early 2008 could well re-emerge this year, given the lack of investment in export infrastructure to increase flexibility and capacity,” said Ms Sen.
Xstrata also said coking coal markets would remain tight as supply growth was constrained by scarce resources and potential infrastructure limitations.
Coking coal prices are largely determined by annual supply contracts as shipments priced via the spot market remain limited.
Credit Suisse recently hiked its coking coal price forecast for the year that starts in April to $190 a tonne, an increase of 52 per cent on the 2009 settlement of $125 a tonne.
“Due largely to infrastructure constraints, there is very little additional supply available for the next couple of years,” said Credit Suisse, which cautioned that its price forecasts could prove conservative.
Market speculation has suggested BHP Billiton could press to settle the 2010 benchmark price at $200 a tonne while several sales in the spot market have been completed above $220 a tonne.
As the largest supplier of hard coking coal to export markets, BHP would like to move to a quarterly pricing scheme where prices are better linked to the spot market but these proposals face opposition from Japanese buyers.
Crude oil made a partial recovery after last week’s fall with Nymex March West Texas Intermediate up 70 cents to $71.89 a barrel, while ICE March Brent gained 52 cents at $70.11 a barrel.
Both the Intercontinental Exchange and CME Group saw record trading volumes for crude oil on Friday.
Base metals rebounded with aluminium up 1.5 per cent to $2,010 a tonne while copper gained 2.6 per cent at $6,445 a tonne.