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Msg  38342 of 65647  at  1/16/2008 7:19:05 PM  by

the_platypus_of_doom


Scotia conference - met coal

Coking Coal - Calum Baker, CRU Analysis

Mr. Baker predicted that metallurgical coal contract prices will reach US$

155/tonne FOB for the 2008 coal year and those contracts are expected to

settle as early as this month. Spot market prices were reported at record levels

in 2007, reaching as high as $180/tonne in December.

Strong growth in the global steel market, particularly in China, has stimulated demand

for metallurgical coal. While China has historically acted as a net exporter of coal, strong

demand growth has required the country to rely on imports since 2004. In the longer term,

India and Brazil will also drive demand, as neither country has domestic coking coal

resources. Mr. Baker estimates that an additional 170 million tonnes of coking coal will be

required by 2012.

Logistics and infrastructure bottlenecks continue to limit supply. Australia is

aggressively increasing capacity at several of its ports, but the capacity will remain tight as

new mine expansions increase seaborne coal supply.

Australia is expected to remain the dominant supplier of coking coal. Australia currently

enjoys greater than 50% share of the global seaborne coking coal market, which Mr. Baker

expects will be sustained in the medium- and long-term. New sources of supply from

Indonesia, Mozambique, and Mongolia will replace U.S. and Polish exports which are

expected to be limited as reserves in these countries are depleted.

Scotia Capital Comment - Mr. Baker's comments align with our expectations of an early

coking coal contract settlement in January or February 2008. Our $140/tonne price outlook

is somewhat more conservative than Mr. Baker's view.



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