Asia Coal-Australian thermal bounces on record oil

Asia Coal-Australian thermal bounces on record oil

Spot Australian thermal coal prices firmed over the past week, rising in sync with record oil prices after escalating conflict in the Middle East.

“I’d say the rise reflects higher crude prices,” said Andrew Harrington, resources analyst at ANZ in Sydney. “Higher oil makes coal a more attractive alternative for electricity producers, fuelling demand and therefore a pick-up in prices.”

Thermal coal, used for power generation, jumped 76 cents or 1.5 percent to $52.76 per tonne in the week ending July 14, the globalCOAL NEWC index showed, based on free-on-board (FOB) prices loaded at Australia’s Newcastle port.

Prices are bouncing back towards April peaks above $53.00 after steadily falling as Columbian mine strikes ended and regional exporters maximised output. Prices for the week were 0.6 percent above the overall June average of $52.44.

Oil touched a record high of $78.40 in New York on Friday as conflict raged between Israel and Hizbollah guerillas, pointing to instability across the Middle East, where almost one third of the world’s oil is pumped.

Australia is the world’s second-biggest exporter of thermal coal after Indonesia, shipping 108 million tonnes in 2005, largely from Hunter Valley mines operated by global giants Rio Tinto (ASX: , Xstrata XTA.L and BHP Billiton (ASX: .

Prices have surged from below $40 in late 2005 as China keeps a greater share of its production for domestic use, demand from importers soared through a cold winter and exports from Indonesia and South Africa were disrupted by heavy rains and rail strikes.

A prolonged period of high spot prices has coincided with lengthy negotiations between Australian producers and Japanese power companies on benchmark pricing contracts for the Japanese fiscal year, which began in April.

Market sources say producers are close to concluding talks, with Xstrata said to have secured rollover prices around $52.50, much higher than expected at the start of the year.

“If anything I was expecting spot to fall as the Xstrata settlement took a bit of tension out of the market,” said ANZ’s Harrington. “I’d have expected prices to trade at or below the benchmark but I guess record oil overrides those influences.”

Coal shipments from Australia’s Newcastle port, the biggest coal terminal in the world, hit a nine-month high last week on their way to breaking a monthly record, in spite in of nine-day ship-loading queues, the port operator said on Tuesday.

Shipments rose to 1.8 million tonnes of coal, about 200,000 tonnes more for the week to July 10.

Copyright © 2006 Reuters. All rights reserved.

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