Coal: Currents in the Deep

A current of change is happening in the deep. POT, the Saskatchewan Fertilizer Company, has more than tripled is worth in two years. Its prosperity is based on a real scarcity of fertilizer and a well organized cartel. I dont have to remind myself of the oil thingie, its price reflects a global scarcity and also a loose cartel. Is COAL the next? I think many producers of commodities must be salivating and planning of a deep re-ordering the word according to OPEC, which one has a chance?

Trader Mark blogs:

ArcelorMittal (MT) CEO was accurate last week [ArcelorMittal Sees Metallurgical Coal Prices Rising 150-200%]. Posco (PKX), a South Korean steel giant, Monday agreed to a 205-210% increase in coking coal. Tremendous. I was hoping Massey Energy (MEE) would fall off a cliff with the Arch Coal (ACI) news, but it did not even go negative on the day. Now I have to wait for Barron's to tell me about the death of commodities again so I can rebuild my position there. Because remember, when the US domestic economy slows down the whole rest of the world shuts down... or so thats what the pundits tell me. And remember, almost every coal company has some exposure to metallurgical coal. And if you read the last paragraph, it looks like thermal coal is also set to see a large increase. Steel prices are poised to rise further after an Asia steelmaker yesterday agreed to a tripling in price of its supply of coking coal in a settlement that is likely to set the benchmark for the steelmaking industry. South Korean steelmaker Posco said it had accepted a 205-210 per cent rise for its supplies from Australian miners. Analysts said that the agreement was likely to be followed by other steelmakers in the region and in Europe, resulting in higher inflation in emerging economies. The increase in the cost of coking coal as set by the Posco settlement was larger than the level expected by the market and the industry and comes on top of a 65-71 per cent rise in iron ore prices this year. Iron ore and coking coal are the two main expenditures for the steelmaking industry. Analysts said that steel prices might need to rise up to 20 per cent to cover the jump in coking coal cost. Steelmakers raised the prices of their products 10-20 per cent in February and March after the cost of iron ore went up. Alan Heap, commodities analyst at Citigroup in Sydney, said that the coal markets had tightened further as a result of production losses in Queensland and reduced Chinese and South African exports."We now expect coking coal contract prices to be set at $285 a tonne," Mr Heap said. That compares with current prices of about $85 a tonne. Spot transactions of coking coal have reached up to $375 a tonne for premium Australian coal, according to Mr Heap. He added that some steelmakers had purchased significant volumes of spot coking coal from US suppliers at very high prices, highlighting the degree of supply shortage in the industry. The increase in coking coal prices is likely to be replicated in thermal coal for power plants, with Australian miners seeking to double the prices to about $110-$125 a tonne, according to brokers and analysts.

This may be my next investment project. Think.