European demand leads to coal-price surge

24th September 2003 By: Martin Czernowalow

Coal prices, which are currently at two-year highs, are expected to surge even further – until mid-2004 at least – before possibly returning to lower levels, market observers predict.

Last week, the globalCOAL RB Index for coal from South Africa’s Richards Bay Coal Terminal increased to $36,25/t (a 90-cent hike), which is the highest the highest level since June 2001. It is anticipated that this price index will increase at this rate for the next two months.

Xavier Prevost, the Mineral Bureau’s chief mineral economist: coal and hydrocarbons, told Mining Weekly Online that Western Europe’s coal prices could hit as much as $47 or $48/t (from a current $45/t), while Richard Bay prices could reach levels of about $40 or $41/t.

However, Prevost points out that despite Europe’s currently strong coal demand, prices can be expected to decrease due to seasonal changes next year.

European demand is currently driven by a hot summer (coal is needed as a source of energy for air conditioning), which has depleted coal stockpiles. And shortfalls are not likely to be replaced until next year, due to higher Asian freight cost. Due to the strong demand, Richards Bay stockpiles are also low – at about a million tons currently.

Prevost speculated, however, that Asia could well rectify its problems next year, which could dampen the demand.

“What happens after mid-2004 is anyone’s guess. Columbia may start to export large quantities or South Africa may export a lot of coal,” he said.

Though current prices are high and demand is strong for coal, Prevost pointed out that many local companies, which should be benefiting from these market conditions, are suffering from the effects of a strong rand.

“Some companies, which should be making millions, are barely surviving,” he said.

Commenting on total coal exports from Richards Bay this year, Prevost said it is predicted that 67-million tons would be reached, while a target of 69-million tons could be achieved should the remaining months of the year prove strong.

The current monthly average for Richards Bay is 5,6-million tons, he explained, due to January and June exports which were particularly low – 4,6-million tons and 4,5-million tons, respectively.

In addition, solid contributions from Maputo and Durban could push the total figure for South Africa up to between 72-million and 73-million tons.

In light of the current market conditions, observers have commented that there is an urgent need to proceed with the proposed expansion of the Richards Bay Coal Terminal.

The project was to raise throughput at the terminal to 82-million a year was announced in mid-2001, but has since been plagued by countless delays.

Once completed, the expansion would give market access to several emerging black economic empowerment coal companies.