Although the prices of November deliveries of natural gas have retreated a little in recent days to US$3.437/MMBtu after the 2012 high of $3.60/MMBtu, this is likely to see a switch back to cheaper coal, a Singapore-based analyst said.
“A potential increase in domestic coal off-take and a rundown in US inventories could result in some positive price sentiment, although it’s early days,” he said.
However, it is mainly Powder River Basin coal that “is in the money” with a natural gas price of above $3.30/MMBtu but it faces rail and port constraints to reach the domestic market, he said.
India provides more of an opportunity for imported coal than China in the short term although any sizeable ramp-up in imported coal demand may not occur until the second half of next year.
“India may be seeing the light at the end of the tunnel as regulators appear to be gaining traction in their efforts to pool imported and domestic coal prices,” the analyst said.
“This should make imported coal affordable to coastal power plants once the policy is implement, which in turn would drive up imports and tighten the market and possible prices as well.”
However, there is likely to be a six-to-12 month deliberation period before a pooled pricing mechanism is implemented.
“Having said that, once in place, we believe the country could import an additional 10 to 20 million tonnes in the term, adding to the 90 million tonnes India currently imports,” he said.
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