Spot prices of coal to buck the trend...companies advised to hold

Implications: The article as per Citigroup predicts a lowering of earnings for the coal industry in light of 1.Stabilization of production post snowstorm and flood related disruptions in China and Australia and extreme power shortages in South Africa. 2. Lowering of volumes owing to regulatory pressures. 3. Earnings will be hit because of predictions of higher input costs of fuel oil, steel and diesel. As per Merrill Lynch however, Japanese utilities, such as Chubu Electric Power Co may need to pay miners in Australia $135 a tonne for coal contracts in fiscal 2008 beginning April, up 143 percent from last year's agreed $55.65. Merrill Lynch had previously forecast 2008 thermal coal prices at $80 tonne. "There is now an obvious scramble for supply with industry sources confirming that Asian steel mills are begging for tonnes at close to any cost," Merrill Lynch said in a report led by Vicky Binns.

Analysis:

The following are the trends in world prices for both coking and thermal coal.Power-station coal prices gained US$13.68 to reach US$139 a metric ton on February 15, up 11% from the previous week, according to the globalCOAL NEWC Index. The coal for delivery to Amsterdam, Rotterdam or Antwerp with settlement in the second quarter rose 2.1% to US$145 a metric ton on Friday. GlobalCOAL's monthly index for thermal coal prices at Newcastle, Australia's biggest coal exporting harbor, rose US$1.71 per metric ton, or 1.9%, to reach US$90.87 in January, the fourth consecutive monthly record. Spot price in US has already surged 37% this year following a 73% rise in 2007.Though this goes directly against the spot price trends in the world, it is an extremely important forecast for thermal and coking coal purchasers of the world to hold on to their money bags for the time being, as prices must definitely stabilize at lower levels. The forecast saving in energy bills can easily run into trillions.Bucking the trend, one of the major utilities recently booked spot thermal coal at 80$ per tonne.