Coal A 'Tight' Community, Skyrocketing Prices To Continue
By Kristine Owram
22 Jul 2008 at 02:22 PM GMT-04:00
Thermalcoal isn't as available as it used to be, so the price of thermal coalhas skyrocketed. It was selling for under $50 a ton just a few yearsago and is now going for close to $200 a ton.
TORONTO (CP) -- Skyrocketing demand combined with a shrinking supply is making coal a "tight" commodity right now, causing prices — and profits — to soar, says the CEO of an Australian mining company that lists its stock in Canada.
PeterLynch, president and CEO of Waratah Coal Inc. (WCI), said in aninterview Tuesday that "hot demand" for coal used to fire power plantsin emerging markets such as China and India is benefiting his companyand the industry as a whole.
"Essentially,thermal coal isn't as easily available as it used to be, so the priceof thermal coal has skyrocketed," said Lynch, adding that thecommodity, which was selling for under $50 a ton just a few years ago,is now going for close to $200 a ton.
"Thecommodity's in hot demand, it's not waning at all, because the demandfor the product is continuing to grow. Irrespective of other economicconditions, the energy demands of India and China will continueunabated."
The rising price of coal has also ledto a consolidation trend in the global industry as companies thatproduce coal used to make steel or to fuel power production try to getbigger to raise output to become more competitive and cash in on risingprices.
Last week, Ohio-based miner ClevelandCliffs struck a nearly $10 billion deal to acquire Alpha NaturalResources, creating a company with the largest reserves of iron ore andmetallurgical coal in the United States.
The merged company will have more than 60 coal mines and nine iron ore mines in North and South American and Australia.
Earlierthis year, the world's two biggest miners, BHP Billiton and Rio Tinto,discussed a possible merger of their far flung operations, whichinclude metals, mineral processing and coal mining assets around theworld. However, the BHP bid, now valued at about $170 billion, wasrejected by Rio Tinto and has turned hostile.
As prices for everything from iron ore to coal rise, the value of companies that produce such commodities also goes up.
Lynch said coal is increasingly seen as a cheap alternative to oil — another reason for the price increase.
"As oil prices go higher, the attraction for coal-fired electricity is even more so," he said.
Lynch added that supply issues will continue to push prices up.
"Thereare bottlenecks developing in the supply side of the industry, whichhas resulted in significant price increases, yet the demand will not goaway because people don't like cold showers and they don't like beingin the dark," he said.
