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14 Apr, 2008 08:06

Cheap coal becomes history

The price for a tonne of coal has doubled, after millions of tones were lost due to severe flooding in Australia. The price surge has hit those steelmakers who rely on coking coal. But Russia may prove immune to the latest bout of commodity price inflatio

China wants it for electricity, India for fuel, and Australia, one of the biggest suppliers, has just seen devastating floods.

That’s seen prices jump by hundreds of per cent – especially for coking coal, which is used by steelmakers.

But, according to analysts, Russia has an advantage.

“The largest coking coal producers are owned by the largest steel makers- Evraz, Mechel, Severstal. And one of the key beneficiaries at this point is Mechel, because it owns Yakutugol which it acquired in October last year. So this company is able to benefit the most from the rising coking coal prices. Because it sells everything that it produces at Yakutugol,” ATON analyst Dmitry Kolomytsin says.

Russia has the world’s second biggest coal reserves after the United States. Of that, coking coal accounts for 20% and is consumed domestically.

In other countries, rising coal prices are hitting steelmakers hard. South Korea’s Posco has already accepted a 200% price rise from Australian miners, to $US 305 per tonne.

And rising fuel costs aren’t the only problem for steelmakers. They’ve already had to digest a rise of 65% in the iron ore price this year.

Some steelmakers in Russia actually welcome higher coal prices.

“As we’re a 100% self-sufficient in iron ore and almost as sufficient in coal, we can basically capture the growth in the coal prices. We also welcome it as it increases the global cost growth, making our competitors’ position weaker,” Evraz group financial director Pavel Tatianin says.