Coal prices are likely to remain strong in 2008, close to this year's average levels, because there are many supply uncertainties and despite the emergence of the United States as a major exporter.
Coal prices surged to record highs in 2007 following a shift from historically abundant supply to tightness due to a leap in Chinese demand, which prompted a cut in its exports.
The consensus in the coal market is that 2008 may see a small dip in prices but, from 2009 to 2015, the trend will be upward, producers, consumers, traders and analysts said. "The general feeling is that the market is going to remain strong," said Jim Lennon, analyst at Macquarie Bank.
"Certainly we believe the world market will remain extraordinarily tight into 2008," said Deck Slone, Vice President Investor Relations and Public Affairs at US producer Arch Coal.
Coal industry members who recently attended a closed-door industry event in Stockholm concluded that there will be a small surplus of around 10 million tonnes in 2008, which will cause a price dip in the second half.
Global supply will rise by about 35 million tonnes in 2008: 5 million from Australia, 15 million from Indonesia, 4 million from Colombia, 2 million from South Africa and 8 million from the United States, Stockholm delegates said.
But producers, traders and consumers said that despite the slightly bearish supply/demand calculations on paper, if just some of the numerous supply problems seen this year are repeated in 2008, the 10 million surplus could easily swing into deficit.
Huge queues at Australia's Newcastle port, lack of Russian rail cars, Russian and South African port problems, doubtful US rail capacity, weather-related shipping problems all combined this year to cut supply and help boost prices.