Coal Costs May Rise As Korea Locks Up Supplies BUSINESS ASIA By Bloomberg

By Angela Macdonald-Smith

Japanese utilities may have to pay 22 percent more for Australian coal next year after South Korean buyers locked in supplies seven months early, anticipating a shortage, Goldman Sachs said. Prices may jump to $68 a metric ton, the securities firm said in a report Thursday, increasing an earlier forecast by 10 percent. Korean utilities have bought one-quarter of their 2008 needs from Australia at about $66, before contracts start April 1, Goldman Sachs said, citing McCloskey’s Coal Report.

The “unprecedented” Korean purchases signal concern among buyers about availability next year, Goldman Sachs said. Asian benchmarks for thermal coal sold under annual contracts are poised to rise to a record for a second year after China became a net coal importer for the first time. Contract prices were settled at a record $56 for the year that started April 1.

“With spot thermal coal prices ex-Newcastle currently around $67 a ton and the Asia-Pacific seaborne market more likely to tighten than ease over the next few months, we believe the major Australian coal suppliers have already established a floor price around $66- $68 a ton for next year’s contract with the Japanese power utilities,” Malcolm Southwood and Paul Gray, both analysts with Goldman Sachs, said in the report.

Power producers in South Korea agreed to buy about 5 million metric tons of their contract requirements next year at a price almost as high as the spot price at Newcastle port in Australia, Goldman Sachs said, citing McCloskey.

Xstrata, Rio Tinto Group and BHP Billiton are among Australian coal producers that ship the power-station fuel through Newcastle, the biggest coal-export harbor in the world.

Goldman Sachs also raised its estimate for thermal coal contract prices in the year starting April 1, 2009, to $60 a ton from an earlier prediction of $55, while retaining longer-term forecasts at $50.

“Many of the supply issues” affecting thermal coal apply to semi- soft coking coal, while demand from Japanese steel mills is running at a record, the firm said. It raised its contract price forecast for that grade of coal in the year starting April 1, 2008, to $76 from $72, retaining a premium of about 12 percent over power- station coal. The contract price for the year starting April 1, 2009, for semi-soft coking coal may be $67 instead of an earlier forecast of $62, it said.

Goldman Sachs left its forecast for hard-coking coal contract prices in the year starting April 1, 2008, unchanged at $120.

Originally published by Bloomberg News.

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