a) Upward pressures on prices are unlikely to abate until 2010, when infrastructure constraints are overcome;
b) met coal demand is driven by growing blast furnace steel
production.
The brokerage firm projects a global metallurgical coal demand increase of 5.5% in 2008 and 5.2% in 2009, with seaborne met coal demand up 2.1% and 6.3%, respectively; and c) long-term prices are forecast to trend down toward a very high $120/t nominal by 2013, which the brokerage calculates is the long-term marginal cost of production and level needed to
generate the supply of seaborne coal to balance the physical market.
The bullish run and current sentiment behind steel production and iron ore is widely known. U.S.-based iron ore and coal producer Cleveland-Cliffs (CLF) said in its recent conference call that it remains bullish on 2009 iron ore prices, projecting that they could be up 26% or more. Additionally,
Cliffs said it does not want to price metallurgical coal product for 2010 delivery. The company is not willing to commit to 2010 delivery unless customers are willing to pay US$300/tonne. Cliffs expects the price to keep going up because supply is so tight.
The company added that it is taking its time in terms of committing to deliveries too far out because prices could increase more.
When asked about the Teck-Fording deal, Cliff'’s management said that Appalachia is one of the few mining districts in the
world that has not been consolidated, and this deal is just the beginning. Briefing.com noted that this is good news for other
Appalachia coal stocks. It will only heighten speculation of others to follow, which is likely to include other small strategic,
east-coast met coal producers including, Patriot Coal (PCX), Massey Energy (MEE), International Coal Group (ICO),
Recently strong activity has allowed the company to pay off its debts. It has no debt, other than convertible preferred shares, making the company's financial health quite strong.
The falling dollar may lead to increased demand for domestic steel as it becomes relatively cheaper to foreign imports. Increased demand for steel from fully-integrated producers should lead to more demand for iron ore.
