China stimulus package may boost Indian coal prices

KOLKATA, India -- The recent stimulus package announced by China to give a push to its infrastructure sector, coupled with a cut in production of high-cost coal by Australian miner BHP Billiton, is likely to boost prices of Indian coking coal, according to some analysts.

Contract prices of coking coal, $170 a ton for the October-December quarter, are set to go up by at least $10 a ton in the January-March period, they said.

"The Chinese stimulus package of $1 trillion is bound to boost coking coal prices and I feel contract prices will reach the level of at least $180 a ton for January-March. For October-December, BHP Billiton has fixed the contract deal with Nippon Steel of Japan at $170 a ton," said Ganesan Natarajan, whole-time director and president of Kolkata-based Ennore Coke, a maker of metallurgical coke.

But Natarajan added that any price movement is expected to happen only after end of December, since "it will take some time for investments in infrastructure to happen and steel output to grow."

According to Natarajan spot prices of coking coal were ruling at $148 a ton but they are also expected to rise by $8 to $10 a ton after December, following an uptick in demand.

"Currently, spot prices of coking coal are lower than the contract prices owing to slump in demand. But gradually, spot prices will close in on the gap with contract prices as demand picks up," he added.

Pukhraj Sethiya, manager-energy for coal and mining of PricewaterhouseCoopers, a global accounting and consultancy firm, said, "The stimulus package announced by China with focus on the infrastructure sector will give a boost to steel demand, which has been slowing in China for some time now. This will also improve coking coal demand and might lead to a higher than expected increase in prices. The impact on coking coal might be higher if the supplies are restricted due to production cut by suppliers of coking coal."

He admitted that the market for coking coal still remained bearish due to slow demand growth. There is a slowdown in the Chinese economy which has led to coking coal inventory piled up at its ports and steel mills, said Sethiya.

For calendar year 2013, the average price of coking coal would be $200 to $220 a ton, he said.

Japan, the biggest player in the sea-borne coking coal trade, is expected to increase its imports, as it is rebuilding its economy. The country's July import at 6.81 million tons was up 32. 1 percent compared with the same period of 2011. The island nation had imported 73 million tons of coal in 2011.

Meanwhile, the production cut planned by BHP is likely to have a significant bearing on Indian consumers.

"India is one of the largest coking coal importers from Australia after Japan and accounts for 20 percent of the total coal exported by Australia. Any significant cut in production by Australian miners resulting in short supply of coking coal will impact the volume available for Indian importers and may lead to a price increase," said Sethiya.