Coal prices to rise on higher use, falling output: UBS
The continued decline of US coal production through the first half of the year, combined with increased domestic consumption, will likely lead to an uptick in coal prices in 2010 and beyond, according to a UBS report.
While the next 10 months will be an "inventory cleansing year" for coal-fired power plants still burdened with high coal stockpiles, the bank's analysts say downward pressure on coal pricing has already been eased by a significant drawdown of inventories in December.
"The combined impact of production cuts and consumption are now indicating that western stockpiles are in deficit [year over year]," said the report, authored by Shneur Gershuni and released March 1. "Meanwhile, eastern stockpiles have finally started to decline."
The first half of the year will continue to see production drops nationwide compared with 2009 levels, as contracts roll over and inventories remain extended.
But the steep 2009 declines are expected to moderate by the second quarter leading into the back half of the year when production is expected to increase about 2.2%, powered by increases out of Western supply basins.
Despite the uptick in the second half of 2010, total coal production is expected to end the year down for the second straight year, off 10 million short tons at 1.07 million short tons.
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