Coal bottleneck tempts investors to other black gold Citigroup sees price rally continuing as blizzards, floods cap output By Moming Zhou, MarketWatch Last update: 7:08 p.m. EST Feb. 6, 2008
SAN FRANCISCO (MarketWatch) -- Coal, whose price surge has already outrun those of crude oil and natural gas, is generating an even louder buzz as a rash of bad weather has reduced its production globally. Citigroup earlier this week raised its forecast for thermal coal, saying it now expects prices for the benchmark product to double this year as blizzards in China, power outages in South Africa, and floods in Queensland cut into global output. Meanwhile, demand for coal keeps rising as the world's electricity use expands. Coal is poised to continue its rally as "tight markets are being further squeezed by new developments," Alan Heap, an analyst at Citigroup, wrote in a research note. Prices already have had a remarkable run. Thermal coal prices at Newcastle, Australia -- an Asian benchmark for coal used in power generation -- jumped 73% last year, beating crude oil as the best performing energy commodity. This year, coal futures trading on the New York Mercantile Exchange have gained 42%, a contrast with oil futures' nearly 10% decline and a 6% rise for natural gas. Citigroup's Heap now sees coal reaching $100 per ton at the end of 2008, nearly double 2007's year-end price. Other investment banks, including UBS AG (UBS: 37.91, -0.28, -0.7%) and JPMorgan Chase & Co. (JPM: 43.72, -0.17, -0.4%) , also raised their estimates for prices of both power-generating and steelmaking, or metallurgical, coal. The recent run-up in fuel prices means higher costs for consumers and industries heavily dependent on electricity. In China, which gets most of its electricity from coal, smaller metals manufacturers could go out of business due to higher electricity prices, analysts said. At the same time, higher traditional energy prices are likely to push China and other countries to pursue alternative energies to heavily-polluting coal. Surging coal prices have generally meant good times for miners, however. Shares of Peabody Energy Corp. (BTU: 50.61, -1.35, -2.6%) , the largest U.S. coal producer, soared 60% last year, although its shares gave back some of those gains this year amid disappointing earnings and fears of a U.S. slowdown. Arch Coal Inc. (ACI: 46.73, -0.66, -1.4%) shares have gained 4.4% this year, adding to the 46% gain last year. Shares of Consol Energy Inc. (CNX: 72.35, -0.85, -1.2%) have also moved higher after more than doubling last year. London shares in Switzerland's Xstrata PLC (UK:XTA: news, chart, profile) , one of the world's largest coal miners, have jumped nearly 10% this year after soaring 40% last year. Snowstorms A streak of bad weather is responsible for the recent run in coal prices. Over the past month, deadly snowstorms raging across China grounded the country's transportation system, cutting off coal supplies. Stalled freight trains brought the country's coal reserves to a short-term low. The current stock of coal for power generation is less than half of the normal amount, which is usually enough for 15 days of consumption, according to Minggao Shen, an analyst at Citigroup. More than 80% of China's power generation comes from burning coal, government data show. David Riedel, president of overseas-equity specialist Riedel Research Group, anticipates China will sharply increase coal imports in the coming months to build its reserves. Coal demand from China, the world's largest coal consumer, "will be very strong in February and March," said Riedel. China, a net coal importer, recently banned coal exports until March, a factor that could further push coal prices higher. Long-term demand for coal is also high. Demand growth from China is estimated 1.5 times above its GDP growth, which stood at 11.4% last year, Heap said. Those factors have pushed up the front-month coal futures contract to nearly $80 per ton Tuesday, up from $56 per ton at the end of last year. U.S.-traded coal futures are rising because the U.S. is shipping more coal to Europe, which has seen its coal imports from Africa and Australia disrupted, said Charlotte Wright, a coal analyst at Platts, a commodities information provider. Coal prices in Asia are running even higher. Prices at Newcastle spiked to $116.44 a ton for the week ending Feb. 1, a historic high, according to globalCoal NEWC index. The barometer tracks coal prices at Newcastle, the world's biggest coal-export harbor. ----------- Gruss Ice Börsengewinne sind Schmerzengeld. Erst kommen die Schmerzen, dann das Geld...(A.K.) |