Coal, No Longer Dirt Cheap

Reuters via Yahoo! News : It may be just dead plants buried deep underground for millions of years, but coal is big business these days.

As with nickel, copper and zinc before it, Canada’s coal is fodder for China’s seemingly endless appetite for raw materials to feed its booming economy. […Coal] is used to make steel and cement, and to fire power stations.

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‘We come out of an extended period of extremely low commodity prices. The weaker producers were forced out of the business, no significant new supplies have come on and suddenly we are facing new demand,’ said Robin Goad, president and chief executive of Fortune Minerals, the owner of a large anthracite deposit in British Columbia.

‘The world has a tendency of overproducing and the pendulum will swing back. But certainly for the next few years, I anticipate that we will have very strong prices,’ Goad said.

Behind Australia, Canada is the world’s second-biggest exporter of metallurgical, or coking, coal, which is heated to melt iron ore in steelmaking. About two-thirds of steel production is dependent on this combustible black rock.

Analysts predict that Canada’s producers could get $100 or more a tonne for their coal in 2005, double what they got this year, as China’s steel output, now in its fourth year of 20 percent growth, shows few signs of slowing.

“Demand remains strong and the structural supply constraints faced by all producers are unlikely to be rectified within two to three years,” said Chris Lancaster, an analyst at RBC Capital Markets.

“The Canadian producers are literally ‘maxed’ out. They have sold everything that they can produce,” said Jason Hayes, an analyst at the Coal Association of Canada.

“They’re attempting to ramp up production to meet demand but production is related to capital expenditures on equipment. To buy a truck or shovel is not a small investment and takes time,” he said.

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