Coal Supply at Newcastle, Australia to Improve, Macquarie Says

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30 Jan 2009

Coal supplies from Newcastle, Australia, the world’s biggest export harbor for the fuel, may improve with the end of disruptions caused by rain and equipment, Macquarie Group Ltd. said. Prices at the port rose 8.3 percent to $88.19 a metric ton in the week ended Jan. 23, the highest since the week ended Nov. 14, according to the globalCOAL NEWC Index. Traders have been “scrambling to secure” coal, London-based analyst Jim Lennon said in a report today. Supplies were disrupted last month by rain and “equipment issues,” he said.
“Newcastle’s strength is driven by short-term supply issues rather than rebounding demand,” Lennon said. “The spate of physical buying seems now to have abated and we believe the tightness in Newcastle should resolve itself.”
Newcastle prices have tumbled from a record $194.79 in July. Demand for coal weakened as manufacturers cut production and the global economy slowed. Industrial output in Japan, Asia’s biggest economy, probably fell 8.9 percent last month, a Bloomberg survey showed. World economic growth will be 0.5 percent this year, the weakest postwar pace, the International Monetary Fund estimates.
Australian producers and traders still expect annual coal supply deals with Japanese customers to be priced at $85 a ton, Lennon said. The fuel is currently selling at $125 under contracts that typically run from April 1.
“Unless there are significant supply disruptions, a Japanese settlement at $85 a ton would appear to defy market logic,” Lennon said. “Other Asian customers would not accept contracts at such a premium to the market. We continue to think spot prices should retreat toward $65-70 a ton and contracts on this basis should be settled at around $75 a ton.”

Source: Bloomberg