guys don't forget that coal prices are down for a reason and...

guys don't forget that coal prices are down for a reason and will likely stay there for time to come.....below is a great article on why coal prices are down and staying down till gas prices recover!

US moves in on Australian thermal coal market
Matt Peacock reported this story on Thursday, May 24, 2012

EDMOND ROY: The 18-month-long industrial dispute in the Bowen Basin has had little effect on the price of coking coal - even though BMA's mines are responsible for about one-fifth of the world's supply.

What the dispute has done is possibly harm the company's reputation as a reliable supplier.

According to James O'Connell, the managing editor of Platts Coal Report, of much more significance for Australia is the softening demand for one of the country's biggest exports - thermal coal.

He says the recent boom for Australia's thermal coal demand might now be over.

He spoke to Matt Peacock.

MATT PEACOCK: According to Platts the BMA dispute in Queensland has come at a rather fortuitous time for world markets.

JAMES O'CONNELL: The real impact this is having is not a lot. We've seen about a $10 increase in prices - maybe 5 to 7 per cent. So in terms of production, this strike has coincided with a time of lessening demand.

The slowdown in relation to China has had a serious impact on the steel mills, they're not producing as much; demand for coking coal is a bit softer.

It's come at a convenient time let us say. I think this is now getting to a stage where it may actually do reputational damage, because it's one thing not being able to meet your shipments, it's a different matter entirely the damage you're doing to the relationship.

MATT PEACOCK: What Australia has much more reason to worry about, believes James O'Connell is a recent significant change in demand for the country's much larger supply of prime quality thermal coal.

JAMES O'CONNELL: At the moment we've seen price falls of about $30 in the last couple of months; that's from February, a high of $122, down to current prices of about $95, slightly under $95.

The main reason for this is that there is increased competition in the global market for coal.

This is not just an Australia story alone but Australia is one of the main victims you might say of this particular incident at the moment.

MATT PEACOCK: So the boom is over in effect?

JAMES O'CONNELL: Well let me put it like this: at the moment the US industry is in decline, the coal burn in Europe while it's quite healthy this year, in general it's going down. So there's a lot more coal available in Asia - the US are exporting, it's at 20 year highs; so there's a lot more competition for Australian producers out there.

MATT PEACOCK: And with China faltering, what's that mean?

JAMES O'CONNELL: I wouldn't quite say China is faltering at the moment. It is that there is a slowdown; they're becoming more price sensitive and this has had a dramatic impact on Australia because they're turning to US coal, Indonesian coal - which is of a lower quality and therefore a hell of a lot cheaper.

MATT PEACOCK: And that's the point isn't it; at the same time as there's this reduction in demand, they're also prepared to buy grubbier coal you might say?

JAMES O'CONNELL: You could absolutely say that; it's definitely lower calorific value.

What we have seen particularly hitting Australia is a two-tier market. Australia has some of the best coal in the world and for that reason the Japanese who are extremely conscious in relation to emissions and security have secured this coal on an annual term contract and do so every year. That's the coal that's flowing to Japan.

There is a new market that has developed - it's a Newcastle 5,500 product, slightly below standard and what we are seeing is that everybody bar the Japanese - so we're talking the Taiwanese, the South Koreans, and China are specifically only interested in this calorific value coal anymore.

MATT PEACOCK: And what are the implications of that for Australia?

JAMES O'CONNELL: Well for Australia funnily enough the same quality, same amount of coal is going to be exported, it's just going to be of a different calorific value.

For producers, because of cost savings in relation to washing the coal and in relation to CAPEX, i.e. the building of infrastructure to treat it, there's a better margin to be made in the lower calorific value coal. So it may actually be good news for Australian producers in that respect.

MATT PEACOCK: The United States you say is now a direct competitor - I mean how do they manage that at their costs?

JAMES O'CONNELL: Well that's the funny thing about American coal. In the last number of years it has become extremely competitive. It's being delivered to China at a delivered price of about $100 at the moment. When you look at the standard quality coal of Australia is at 95 plus delivered costs, it's $10 better off to get American coal.

What they are doing, because there is quality differences, they're buying American coal, they're buying Indonesian coal, they're blending it and it's much more cost effective.

MATT PEACOCK: So what's this mean in a nutshell for Australian producers for the next few years?

JAMES O'CONNELL: Well it depends to a certain extent on freight. It's one thing getting the coal out of the mine; it's a completely different matter how much it costs. So freight will determine it but at the moment freight is in a real slump as well, so experts we speak to have suggested that there's going to be a flat line, or possibly even lower freight numbers over the next couple of years.

So at least in the short term you're looking at serious competition for Australian producers, which means the heat is on.

EDMOND ROY: James O'Connell, managing editor of Platts coal report, speaking to Matt Peacock.