Dec 6, 2010

Coking coal prices rise to US$225/ton

In line with the 5.2% rise of thermal coal price at Australia Newcastle port to US$111.24 per metric ton, a report from BHP Australia, quoting the Barlow Jonkers and McCLoskey coal price index, said Q1 2011 spot market prices for coking coals type Peak Down and Goonyela will increase by US$16 and US$17 per ton respectively.
The Peak Down coking coal is to increase from US$209 to US$225 per tons, and the Goonyella coking coal from US$204 to US$221 per tons, the report specified. Does it benefit PT Borneo Lumbung Energi & Metal (BORN) as hard coking coal producuer?
In a press statement today, Geroad Jusuf, Borneo Director,  said he received the report from our source in Australia last weekend.
BORN's hard coking coal is the Goonyella type, and therefore there will be an increase of US$17 per ton for our coal in the spot market.Australian Coal Sector - Force Majeure declared at 3 mines in QLD’s Bowen Basin. Goonyella rail line is closed.
In line with hard coking coal prices, Credit Suisse in a report published on December 3, 2010, said three coal mines in QLD’s Bowen Basin have declared force majeure because of flooding in pits.  The impacted mines are Coppabella (Macarthur Coal), Moorvale (Macarthur Coal), and Isaac Plains (Vale/AQA.AX) and equate to roughly 9 million tons per annum of production.
Flooding in the pits has restricted mining and ability to access coal, given extremely low stockpiles (drawn down during heavy rains in September), while the companies have insufficient coal to meet contracted obligations, and have declared force majeure. Will others follow? We don't know yet.
The entire Goonyella rail line has been closed indefinitely due to rain. The rail goes to Hay Point/Dalrymple Bay ports. Some parts of the highways in the Moranbah region are flooded and have also been closed.
Where are these mines and who is nearby? In Figure 1 and Figure 2 and we have included a map and details of major mines in the Bowen Basin. Coppabella, Moorvale, and Isaac Plains are relatively small from a global coal market standpoint, but they are very close to some of the major Bowen Basin mines including: Peak Downs, Goonyella, Hail Creek, Moranbah, Saraji, and Burton.
"All we know at this point is it has been very wet in the area and that stockpiles and pre-strips have been impacted."
How bad could it get? BHPs production was down 30% in extreme wet weather of March 2008. Back in early 2008 QLD was subject to extreme wet weather. During this time, BHP.s coal production was down around 30%. While rains to date have been bad, March 2008 rains were much worse.
Let's not panic just yet: operations could be re-started in <1 week. To allow operations to re-start water will need to be pumped from the pits.
Both impacted companies estimate operations could be re-started in less then a week (Macarthur suggested a few days), but this is dependent on further wet weather. but we note the current forecasts suggest continued rain.
MarQ coking coal prices settled at US$225/ton. but PCI and semi-soft remain unsettled. The potential impact on pricing (if any) is difficult to predict at this stage.
Hard coking coal prices appear to be locked in at US$225/ton until the end of March 2011 given recent reported settlements. However PCI and semi-soft coking coal prices for the MarQ are currently being negotiated. Will quarterly prices benefit or hinder the miners?

Disclosure: No position at the stock mentioned above.

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