Coal prices predicted to stay strong through 2006 based on demand

Washington (Platts)--7Dec2005

Electric power's insatiable demand for coal will likely continue into 2006,
although at a somewhat slower rate than in 2005, and consequently coal prices
will also increase, but again at a slower rate in 2006, according to the
Energy Information Administration's Short-Term Energy Outlook for December. 

Electrical power demand for coal is projected to increase by 2.4% in 2005 and
1.7% in 2006, as power demand for coal continues strong in response to higher
oil and natural gas prices. Total domestic energy demand in 2006 is projected
to increase 2.0%. 

However, the coal production levels are projected at 0.8% for 2005 and 3.9% in
2006, falling short of demand. 

Coal prices rose 15.3% in the first half of 2005, compared with the same six
months in 2004, but the price increase is expected to slow through 2006. Coal
prices are expected to rise 13.2% in 2005 and an additional 5% in 2006,
increasing from $1.35/mmBtu to $1.61/mmBtu in 2006. 

Electricity demand is projected to climb 3.5% in 2005 and an additional 1.2%
in 2006. "Year-over-year electricity demand growth rates are estimated to be
particularly strong, as cooling and heating demands likely will be higher than
in the mild third and fourth quarters of 2004." Estimates for 2005 prices for
delivered electricity range from 6.2cts/KWh to 11.8cts/KWh. 

Both gas and oil prices will stay high as well, as supplies continue to be
reduced as a result of hurricane damage to refineries along the Gulf Coast,
the agency said. "Because prices remain high, 2005 total natural gas demand
will likely remain at about 2004 levels, then increase by 1.0% in 2006,"
assuming normal weather patterns and expected reactivation of damaged
industrial plants along the Gulf of Mexico. By the end of 2006, industrial and
residential demand is expected to recover. 

In addition to steam coal, coal for coke is expected to increase about 7% over
the same time period. 

Total US coal production is estimated to reach 1.14-bil tons in 2005 and
1.15-bil tons in 2006, with interior production staying relatively flat,
Appalachian production declining somewhat and western production increasing. 

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