Merrill foresees higher price on higher demand

September 17, 2009: Merrill Lynch & Co. a unit of Bank of America Corp. increased its price forecast for Asian power-station coal in the first week of August because of higher demand from India and China. However, Peabody Energy Corp, the leading global mining company, sees a slowing second half demand from China.

Merrill has raised its projection for the benchmark coal burned by Japanese utilities in the year ending March 31, 2011, to $85 a ton from $80 per ton. Earlier in July, Goldman Sachs JBWere Pty. had increased its forecast to $80 per ton from $75 per ton for the same period.

"Surprise strong buying by utilities in India and China" is driving thermal coal demand, Merrill analysts led by Sydney-based Stuart Howe said in the note. Prices at Australia's Newcastle port, an Asian benchmark, have climbed over 26 percent since the end of March and were at over $76 a ton in the week ended July 31, according to the globalCOAL NEWC Index.

Power-station coal prices at Newcastle are rising on expectations that China will import more of the fuel, emerging demand growth in India, and improved economic conditions as credit markets recover, Merrill said.

Meanwhile, a large number of Indian traders contacted by Coal Insights said that China's coal import might fall as it has already started raising its domestic production.

Australian and Indonesian coal output have the biggest influence over the trade supply outlook, Merrill said. Rising production costs, declining exploration and development success, and rain in Indonesia suggest "supply growth is now limited," Merrill said.

Meanwhile, Peabody Energy Corp on August 12 said it sees slowing Chinese demand for thermal and metallurgical coal after a strong first six months of the year.

"We are seeing signs of both of those slowing down right now as China has kind of gone through their first stimulus, and their export economy has not recovered," Chief Executive of Peabody, Greg Boyce, was quoted as saying in media reports.

Source: Coal Insights