U
S coal prices are rising rapidly as unexpected growth in demand
this year is undermined by declining domestic production, according to
Standard and Poor's.
The ratings agency says in a report to be released on Thursday that demand has risen because of the stronger economy, weather-related usage and the running of coal plants at higher capacities as utilities have increasingly switched to the fuel to avoid paying skyrocketing natural gas prices.
Yet US production to meet this demand has been declining over the last few years and coal exports have increased, with high-grade thermal coal being marketed for Asia's surging steel production needs at a time when the depreciation of the US dollar makes it attractive.
Efforts to build up coal inventories are being hindered as US
railroads experience severe congestion, with demand for all commodities higher
than expected. Coal inventories already are at historic lows, with coal-fired
generation outpacing coal production. Some utilities report inventories of
only about one month.
[snip]
By Sheila McNulty in Houston
Published: August 12 2004
Financial Times
Read the original here
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“Inventories will reach an all-time low by year-end 2004, potentially causing further volatility in spot prices,” said Aneesh Prabhu, S&P credit analyst.
Relatively small volumes of coal are traded on spot terms, therefore prices fluctuate rapidly based on changes in supply and demand. S&P says that in central Appalachia, for example, the benchmark Big Sandy barge low-sulphur coal spot prices have nearly doubled to $60 per ton this month from about $31 per ton in January 2003.
According to most commodity price forecasters, Mr Prabhu says, resolution of many of the current issues could result in a decline in spot prices. “However, structural issues may linger and could result in coal finding a higher price equilibrium level both for spot and contract prices,” he added.
Among the structural issues identified by S&P are that central Appalachian coal production is not expected to increase quickly, as much of the easily mined coal has been depleted and delays in permits are slowing access to new reserves.
Mining costs in the area have risen, and northern Appalachian mines are not responding to demands for increased production because of property and environmental lawsuits, and uncertainty regarding future emissions rules.
In addition, several producers and a few consumers are operating under the constraints of bankruptcy protection from the courts.
Posted by Dan Chay at August 12, 2004 02:21 PM |