December 20, 2007	Thursday	Zilhaj 9, 1428

LONDON, Dec 19: Coal prices are likely to remain strong in 2008, close to this year’s average levels, because there are many supply uncertainties and despite the emergence of the United States as a major exporter.

Coal prices surged to record highs in 2007 following a shift from historically abundant supply to tightness due to a leap in Chinese demand, which prompted a cut in its exports.

The consensus in the coal market is that 2008 may see a small dip in prices but, from 2009 to 2015, the trend will be upward, producers, consumers, traders and analysts said.

“The general feeling is that the market is going to remain strong,” said Jim Lennon, analyst at Macquarie Bank.

“Certainly we believe the world market will remain extraordinarily tight into 2008,” said Deck Slone, Vice President Investor Relations and Public Affairs at US producer Arch Coal.

Coal industry members who recently attended a closed-door industry event in Stockholm concluded that there will be a small surplus of around 10 million tons in 2008, which will cause a price dip in the second half.

Global supply will rise by about 35 million tons in 2008: 5 million from Australia, 15 million from Indonesia, 4 million from Colombia, 2 million from South Africa and 8 million from the United States, Stockholm delegates said.

But producers, traders and consumers said that despite the slightly bearish supply/demand calculations on paper, if just some of the numerous supply problems seen this year are repeated in 2008, the 10 million surplus could easily swing into deficit.

Huge queues at Australia’s Newcastle port, lack of Russian rail cars, Russian and South African port problems, doubtful US rail capacity, weather-related shipping problems all combined this year to cut supply and help boost prices.

“What I don’t see is where there is a clear source anywhere of spot coal, in quantity, for 2008,” one European utility said.

Russian exporters said it would take them until June 2008 to catch up with delayed shipments due to logistical problems -- lack of rail cars and port disruptions.

Indonesian producers said shipments would be vulnerable to heavy rains during the next few months. This year late rains in January led to a spate of force majeure declarations.

Australian shipments were delayed and restricted throughout the year due to queues at Newcastle port.

The reintroduction of quotas for port access is not expected to resolve the problem.

Around 20 million tons of US coal has been sold for 2008 shipment to Europe, US coal analyst Jim Thompson said.

The 8 million tons projected at the Stockholm meeting is a cautious under-estimate, other industry sources said.

But some buyers are not convinced this mostly high-sulphur coal is the solution to tight supply.

“The US is a new source for Europe and this figure of 20 million tons keeps being talked about. But how much of it will actually be shipped here and how many of the sellers really do have the port and rail capacity needed?”

If US coal is going to continue to be exported, prices have to stay at least $50 a short ton free-on-rail at the mine (equating to over $125.00/T CIF ARA), Thompson said.

“The supply situation isn’t getting any better around the world. There are challenges in virtually every exporting country,” Thompson said.—Reuters