10 Sep 2009 13:53

Prices on coking coal likely not to increase by over 20% - analysts

MOSCOW. Sept 10 (Interfax) - Coal producers are in negotiations with metallurgical enterprises to raise prices on coking coal starting from the fourth quarter, a sector source told Interfax.

"Since the start of the year, coal prices have gone unchanged remaining at 1,600-1,700 rubles per tonne," the source said, adding "this means that producers, now less efficient in the sector, have not been able to prepare reserves." The source stressed that would create a coal deficit on the market.

He added that, throughout the year, coal producers had repeatedly commented on the sector's lack of financing owing to low prices and, as a result, a drop in investment for the modernization of mines and equipment. They have said that 2,000-2,400 rubles per tonne would be a fair price.

"But now the situation has changed. Demand has increased and other prices are already being considered," the source added.

Another source in the sector believes that the current world price of coking coal would be fair excluding expenditures on transport. Therefore, the source puts a fair coal price at around 2,300-2,900 rubles per tonne depending on the brand (up 40% from current prices).

The metallurgical companies have said that they expect prices increases in the fourth quarter. As a result, Novolipetsk Metallurgical Combine (NLMK) has signed contracts for the purchase of coal in the third quarter at a price equal to the second quarter at 1,700 rubles. Prices for coking coal are expected to increase in the fourth quarter.

"With coking coal prices below $50 a tonne only the most efficient representatives of the Russian coal industry can operate without losses," analysts at Renaissance Capital said. "Nonetheless, we expect an increase in prices on the domestic market of around 20% on a quarterly basis to $55-$60 a tonne (from stock), which means reaching parity with export spot prices of $90-$100 per tonne," they said.

Analysts from UniCredit also believe that an increase in prices on coking coal will not be significant owing to the strong position of the metallurgical sector in the pricing negotiations.