'Cracks,' such as ocean freight, in pricing picture

Coal and petroleum coke prices are "unbelievable" to consultant John Dean of JD Energy, but it will not necessarily ever be thus in his cautionary view.

"Most people are talking about the coal market staying high until 2011, or so, but there are a lot of potential cracks out there," Dean told Platts.

For example, "ocean freight rates could come plummeting down when some new shipping capacity hits the market," he said. "Then there's the whole economic issue of whether, in fact, the US recession spills over into a global scale, and whether China significantly cuts back after the Olympics, since China and India, as well as Brazil, are facing rapidly growing inflation, which I think is the biggest issue.

"Some of these countries may need to control their economies in order to keep inflation from getting out of control," he said. "These are the kind of things we're looking at right now, things that could soften the market."

Coal and petroleum coke producers and sellers are probably "feeling pretty safe, as though nothing is going to stop them," he said, "but in the long run, I suspect that something will."

Ocean freight rates are among the things that could put the brakes on petcoke and coal pricing. "One of the things that making US coal and petcoke exports attractive into Europe -- besides the weak dollar, which is really the main thing -- is the high ocean freight rates." The shorter distance from the US into Europe keeps transport costs lower than those from other supply areas.

"If ocean freight rates really come down, it's going to be a great equalizer in terms of allowing some coals to become a lot more competitive. Some areas are out of reach right now because of high freight rates," Dean said.

New coal plants looking at petcoke

Petcoke is a favorite of European cement makers, but a changing market could have a serious impact for that particular group of end-users, he said.

"In the past, you could pretty much gauge things by what was happening in the European cement market. It was the key signal as to what was happening to petcoke prices, because there were not that many US utilities that were burning petcoke. The European cement market was where a lot of the petcoke demand was centered, but now it's becoming more and more of a power company product."

In 2009, Central Louisiana Electric will bring its petcoke-fired Rodemacher Unit 6 online, and Entergy is re-powering the Little Gypsy unit. "Just about everybody I know of who is building a new coal plant is at least giving some consideration to petcoke," Dean said.

Created: July 22, 2008

Return to top

Take a trial to Coal Outlook or start a subscription today to read more about the outlook of coal in 2004 as well as all the latest news on the coal industry, including: coal price trends in all major US producing areas; major coal companies in the financial markets; mine openings, closings, and production; who's in the market for coal, and what they're looking for; court cases and government decisions that set the climate for coal mining and use at both the federal and the state levels.