Met coal contract negotiations strained [BlackDiamond]
Buyers steel for metallurgical coal negotiations
By Zachary Howard, NEW YORK, Aug 4 (Reuters)
Talks between coal companies and steel producers could become strained this year if sides stayed far apart on views about prices of a key product used in steelmaking, analysts said on Thursday.
Some buyers are already negotiating with sellers of the substance -- metallurgical coal, or met coal -- with the hope of striking a deal ahead of the customary "mating season" closer to the fourth quarter.
Met coal, or coking coal, is used to fire blast furnaces at steel plants.
Jim Thompson, editor of the Coal & Energy Price Report, said tensions may rise in this year's discussion, after met coal and steel prices exploded higher last year amid phenomenal demand from international steel companies.
"It's early stages yet, but I think it's likely to be difficult and lengthy negotiations," he said. "Suppliers are reluctant to give up those gains that they've made, and steel prices, while they've slumped a little bit, still are high historically."
Enthusiasm this year for humble met coal is due to the current boom in steelmaking, which was fueled in part by red-hot industrial expansion in China and India.
Players are especially keen to see what kind of a tack Mittal Steel will take in discussions. The company became the No. 1 global steel maker following its $4.5 billion purchase of International Steel Group. "It sounds like, from the way suppliers are complaining, that Mittal will take a pretty tough stance," said Thompson. "People are wary of them because they are a big market power and are somewhat of an unknown at this point."
In a met coal deal announced on Tuesday, Canada's Elk Valley Coal finalized 10-year sales pacts with producers Nippon Steel Corp. and POSCO of South Korea. The agreement calls for a total of 4.85 million metric tons per year of met coal for 2005, rising to 6.25 million tonnes per year for the 2007 coal year onward. Terms were not disclosed.
Analysts said customers this year hope to secure deals for "low-vol" met coal, the rarest and priciest type, at $70 to $80 per ton, while sellers are seeking at least $80 to 90 per ton.
Last year, sides reportedly shook hands at about the $80 per short ton level domestically and at the mid-$90's per ton mark internationally. Market sources said U.S. coal producer Peabody Energy Corp. has made a two-year supply deal with a domestic steel company at levels near last year's low-$70's per ton level. Ian Synnott, an analyst at Natexis Bleichroeder Inc., said the Elk Valley and Peabody news was encouraging in that some steel companies wanted to sign long-term deals right now. "You may see met coal data looking a little stronger than people expected this year," he said. "The steel industry had to work through some excess supply, but you haven't really seen a collapse in prices there." Alpha Natural Resources Inc. said Thursday the market for poorer-quality met coal may weaken and prices slip in the short-term, but demand and prices for higher-quality met coal should remain firm due to supply constraints. Longer-term, prospects are more promising, it said, with 10 million to 15 million tons of new or rebuilt coke oven capacity seen coming on stream in 2006 to consume met coal.
A few kinks have developed in the coal supply chain this year, and experts said that output and transportation problems are likely to remain commonplace in the industry. For example Australia, the biggest met coal producer, has plenty of product, but its terminal space at many locations remains inadequate to handle shipping volumes. In the United States, Consol Energy Inc.'s Buchanan mine halted production at its Virginia pit for four months due to a fire before operations reopened in June. A Walter Industries Inc. U.S. coal mine is expected to stay shut for this year due to operational problems, losing around a half-million tons of met coal output, analysts said.
Coal Producer Massey Energy Co. said last week that rail service delays and disruptions and less underground mining have been to blame for reducing some coal shipments. Massey expects to ship 10 million to 11 million tons of met coal this year.
By Zachary Howard, NEW YORK, Aug 4 (Reuters)
Talks between coal companies and steel producers could become strained this year if sides stayed far apart on views about prices of a key product used in steelmaking, analysts said on Thursday.
Some buyers are already negotiating with sellers of the substance -- metallurgical coal, or met coal -- with the hope of striking a deal ahead of the customary "mating season" closer to the fourth quarter.
Met coal, or coking coal, is used to fire blast furnaces at steel plants.
Jim Thompson, editor of the Coal & Energy Price Report, said tensions may rise in this year's discussion, after met coal and steel prices exploded higher last year amid phenomenal demand from international steel companies.
"It's early stages yet, but I think it's likely to be difficult and lengthy negotiations," he said. "Suppliers are reluctant to give up those gains that they've made, and steel prices, while they've slumped a little bit, still are high historically."
Enthusiasm this year for humble met coal is due to the current boom in steelmaking, which was fueled in part by red-hot industrial expansion in China and India.
Players are especially keen to see what kind of a tack Mittal Steel will take in discussions. The company became the No. 1 global steel maker following its $4.5 billion purchase of International Steel Group. "It sounds like, from the way suppliers are complaining, that Mittal will take a pretty tough stance," said Thompson. "People are wary of them because they are a big market power and are somewhat of an unknown at this point."
In a met coal deal announced on Tuesday, Canada's Elk Valley Coal finalized 10-year sales pacts with producers Nippon Steel Corp. and POSCO of South Korea. The agreement calls for a total of 4.85 million metric tons per year of met coal for 2005, rising to 6.25 million tonnes per year for the 2007 coal year onward. Terms were not disclosed.
Analysts said customers this year hope to secure deals for "low-vol" met coal, the rarest and priciest type, at $70 to $80 per ton, while sellers are seeking at least $80 to 90 per ton.
Last year, sides reportedly shook hands at about the $80 per short ton level domestically and at the mid-$90's per ton mark internationally. Market sources said U.S. coal producer Peabody Energy Corp. has made a two-year supply deal with a domestic steel company at levels near last year's low-$70's per ton level. Ian Synnott, an analyst at Natexis Bleichroeder Inc., said the Elk Valley and Peabody news was encouraging in that some steel companies wanted to sign long-term deals right now. "You may see met coal data looking a little stronger than people expected this year," he said. "The steel industry had to work through some excess supply, but you haven't really seen a collapse in prices there." Alpha Natural Resources Inc. said Thursday the market for poorer-quality met coal may weaken and prices slip in the short-term, but demand and prices for higher-quality met coal should remain firm due to supply constraints. Longer-term, prospects are more promising, it said, with 10 million to 15 million tons of new or rebuilt coke oven capacity seen coming on stream in 2006 to consume met coal.
A few kinks have developed in the coal supply chain this year, and experts said that output and transportation problems are likely to remain commonplace in the industry. For example Australia, the biggest met coal producer, has plenty of product, but its terminal space at many locations remains inadequate to handle shipping volumes. In the United States, Consol Energy Inc.'s Buchanan mine halted production at its Virginia pit for four months due to a fire before operations reopened in June. A Walter Industries Inc. U.S. coal mine is expected to stay shut for this year due to operational problems, losing around a half-million tons of met coal output, analysts said.
Coal Producer Massey Energy Co. said last week that rail service delays and disruptions and less underground mining have been to blame for reducing some coal shipments. Massey expects to ship 10 million to 11 million tons of met coal this year.
posted by sotn @ 3:50 PM permalink
0 Comments:
Post a Comment
<< Home