Coal market waits on weather and buyers as stockpiles grow

Coal market waits on weather and buyers as stockpiles grow

Washington (Platts)--19May2006

The coal market is moving sideways right now as utilities move through the
shoulder months, but prices may rise toward the end of the year as winter
approaches. Both NYMEX look-alike and CSX-delivered coals tested the $50/short
ton barrier Thursday, continuing a downward trend.

Coal spot prices have drifted downward across the board for several weeks, and
Thursday, the natural gas contract for June delivery broke the $6/MMBtu
barrier to drop to $5.95/MMBtu at mid-day. A 91-Bcf build in US gas storage
stocks sent the June NYMEX gas futures contract tumbling below $6/MMBtu,
sliding 17cts to 19cts by mid-day.

"That was a big build," a New York-based analyst said. "There's no helping
this market. Last week was its big chance to turn some cooler-than-normal
[weather] into a lower net injection, and we got a bigger net injection
instead." Market participants can forget all the talk of possible returning
industrial demand. "Last week's [injection] was a little bit of a bearish
surprise, but we had more heating demand last week than in the prior week and
it didn't matter. There's still just too much gas."

Feeding the coal price drop are stabilizing stockpiles at utilities, a mild
winter, the downward price of natural gas and utilities staying out of the
market until prices fall further.

Weather always is a factor, as the shoulder months through June have been
mild, said Larry LaCosta, manager of the coal desk at GA Options, Thursday.

Late Wednesday, scientists at the National Oceanic and Atmospheric
Administration's National Climatic Data Center reported that April was the
warmest ever based on records dating to 1895. The residential heat index was
down 12%, the scientists said.

Utilities' coal purchases are starting to level out as they are "more
comfortable with their inventories," LaCosta said.

Summer could be next buying time

Utilities have good stockpile levels of around 30 days because of the mild
winter and spring, so they aren't buying on the spot market, a Central
Appalachian trader said. He doesn't expect demand to pick up until the weather
gets hot and air conditioning demand kicks in.

"No one is buying much, utility-wise, unless you cut them a real low deal,
like under $50. Then they would make room. They're sitting back waiting for
prices to drop," the trader said.

There are signs that the price of coal could climb again by the fourth quarter
2006 or Q1 2007, LaCosta said. It's possible look-alike and CSX coal could
heat up to about $60/st in that time.

Supporting coal prices are tensions in the Middle East that have not subsided,
keeping up worries about petroleum supplies.

Also, the president is pushing alternative fuels, including coal, to lessen
petroleum demand. As coal liquefaction and gasification force increased
demand, the coal price will gradually climb, as long as emission standards are
not too strict, LaCosta said. The country could see coal prices subside if
power plants begin looking for cleaner fuels.

While it has continuing concerns about certain key load pockets, the Federal
Energy Regulatory Commission staff on Thursday offered a somewhat brighter
assessment of market and operational conditions as the country enters the
summer cooling season. Tight generation and transmission capacity into
Southern California, Southwest Connecticut and Long Island ? "where investment
has not kept up" with growing needs ? make those areas vulnerable to price
spikes and supply curtailments, said Stephen Harvey of the Office of
Enforcement.

But thanks to strong and growing stocks of gas and coal in place for power
generation across the country, a greatly improved hydropower situation in the
Pacific Northwest and effective demand response and emergency pricing programs
now in place in the Northeast, California and elsewhere, the market "at the
onset of summer appears to be stronger than last year," Harvey said in
presenting the staff's summer assessment.

-- Charlotte Wright, charlotte_wright@platts.com

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