MARKETS SPECTATOR: Asia's coal craving

Cougar Energy's chief executive expects Asian firms to seek to partner with Australian coal companies in order to secure supply for their industries.

China, India, Japan and South Korea will continue their healthy appetite for Australian metallurgical coal for power generation and steelmaking, propping up the price of such coal at $US150 a tonne for the next five years, says Cougar Energy chief executive Rob Neill.

Neill says he has visited coal buyers and international trading companies in China, India, Hong Kong and Singapore in order to seek financial backing for the company’s planned exploitation of its mine in Queensland’s Bowen Basin which may hold as much as 170 million tonnes of metallurgical coal. He says interest from Asian investors in Australian coal companies is strong.

“India wants to buy Australian coal assets, along with China,” Neill told Markets Spectator. “They will invest in a company rather than an asset.”

But many Australian coal miners fell out of favour last year as coal prices tumbled on weaker regional demand. Australian coal producers face renewed competition with rival suppliers in North America and Russia, as they redirected cargoes to Asia from Europe and the US.

Neill expects the price of coking coal to be $US190 to $US200 a tonne in the next five years. Metallurgical coal is usually priced at a 20 per cent discount to coking coal, says Neill, who expects such coal to be priced by the market at $US150 to $US160 a tonne over the next five years. The latest price for PCI coal is $US142 a tonne.

Coal will drive power generation and steelmaking for the next 20 years, says Neill, as there will be no significant challenge to the commodity being used by power stations and steel mills. “Renewable energy is making limited inroads,” he says.

Still, the Cougar chief says Chinese economic activity is “taking a breather”. But “demand metrics” say the economy will rebound "in three years”.