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Australia-Japan coal prices to rise next year-AME

SYDNEY: Japanese contract prices for Australian coking and steaming coal will begin to rise next year after the price cuts of recent years, Australian analyst AME Mineral Economics said on Monday.

This was despite a forecast rise in Chinese coal exports which would make the country a major swing producer, AME said in a report on Export Coal 2000.

"Japanese reference prices for steam coal will recover in Japanese fiscal year (beginning April 1) 2001 and 2002 as the market swings from oversupply to undersupply," AME said.

Price rises would be required to stimulate investment in new production capacity.

AME also forecasts a progressive rise in hard coking coal contract prices after Japanese fiscal year 2000, to US$42.80 a tonne in real terms by 2002.

This would be up from the benchmark coking coal contract price for 2000/01 of $39.75 a tonne, down by 5.1 percent on the previous year.

"The demand outlook for steam coal is far brighter than for coking coal," AME said.

"At the heart of steaming coal demand is the Asian electricity sector. Coal-fired power stations continue to be built at an impressive rate in Asia despite some winding back of construction schedules through the crisis years," it said.

However, hard coking coal demand for steelmaking would be particularly weak with semi-coking coal providing an increasing share of the coke oven blend over the next 10 years, AME said.

BILLITON SEEN DOMINATING PRODUCTION

Growth in internationally traded coking coal demand would remain weak over the long term, with demand not expected to surpass the 1997 peak of 189 million tonnes until 2001, it said.

Steel production would grow robustly over the next five years as the world economy maintained growth rates of more than three percent a year.

However, much of the increase in steel production would be from a recovery in electric arc furnace output, it said.

AME sees major international mining companies such as The Broken Hill Pty Co Ltd, Rio Tinto Plc/Ltd and Billiton Plc controlling an ever larger share of the international coal market.

This would provide more rational mine development schedules, strengthen the bargaining position of producers compared with buyers, and produce a more efficient response to downturns in the market, it said.

"The traditional propensity towards oversupply will therefore be tempered in future," it said.

On China, AME said the country's exports were growing to the point where swing production could have a substantial influence on market dynamics.

The Chinese government was targetting coal exports of 50 million tonnes in 2000 and there was sufficient spare production capacity available to achieve this, it said.

But with returns on the export market struggling to match those available from domestic consumers, China's exports were likely to fall somewhat short of the official target.

AME forecast China's coal exports would grow to 71 million tonnes by 2004 from 38.4 million tonnes in 1999. It forecasts exports of 45.6 million tonnes in 2000.

"Impressive cost cutting in the Australian export coal industry has ensured that it will continue to be the dominant coal exporting force over the next 10 years," it said. -Reuters