Teck Cominco (TCK)

The coal sector has been a big story of late, with a huge run up earlier in the year and a recent sharp decline as investors jumped ship. Speculation and interest in the sector was reinvigorated following Teck Cominco’s (TCK.B) offer to buy Fording Coal (FDG.UN) earlier this week.

A major Bay Street brokerage put out a metallurgical coal piece yesterday with the following highlights:

a) it projects metallurgical coal contract prices to stay

extremely strong in 2008 and 2009, averaging US$305/t and US$300/t, respectively. 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.

Demand and Price Increases

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.

Teck Cominco is a major owner in Fording Coal and rumoured to seek a buy out to gain full ownwership. The recent run -up in coal prices is predicted by Cannacord to continue.

Coal Price Forecasts:

Cannacord has raised its coking coal and thermal coal pruice forecasts. Hard coking coal is raised from $200 a tonne to $ 300 but it also sees a decline in2010 to $225

In addition: Teck has an oil sands position to develop AND finally a major copper production at near record prices.