The Surging Coal Price  

The Australian has a report on the huge coal price increases being won by BHP and Rio Tinto in Asia (and beyond) and the impact on the Australian dollar exchange rate. The sound of weeping you can hear is coming from Asian importers, Australian non-mineral exporters and American consumers. On the bright side, the more expensive coal gets the sooner we'll be able to replace it with solar thermal power.

AUSTRALIAN coal exporters are expected to win a tripling in prices this year following an unprecedented standoff with China that sent the trade deficit plunging to a record $3.3 billion in February.

Export revenue dropped by $800million in the month as shipments of coal and iron ore were held up by floods, cyclones and the negotiating tactics of Australian mining companies and the Chinese Government over new contracts for the two key ingredients needed in steel-making. The trade deficit was 30 per cent bigger than the previous month. "It is extraordinary to see such a large trade deficit in the middle of the largest resources boom in more than 50 years," said ABN Amro chief economist Kieran Davies.

The mining companies appear set to triumph, with BHP Billiton close to a deal with South Korean steel giant Posco for a price of $US300 ($325) a tonne for coking coal in 2008-09, up from $US97 in 2007-08.

Negotiations with the Chinese on iron ore sales are likely to lead to a much bigger increase than the 65 per cent won by BHP's and Rio Tinto's Brazilian rivals. Iron ore prices could rise by between 71 and 85 per cent for the year that started on April 1.

Thermal coal, which is used for power stations rather than steel-making, is expected to more than double from its existing level of $US56 a tonne. The impact of the coking and thermal coal price rises alone would boost Australia's annual 2008-09 export revenue by $35 billion to $56billion. ...

Mr Meer said the effect of the increases would be to lift Australia's terms of trade - the level of export prices relative to import prices - by about 17 per cent this year. As with previous increases in the terms of trade, there will be a big boost to budget revenue, with the Government collecting almost a third of the additional sales revenue in company tax.

The price gains may push the value of the Australian dollar from the current US92.4c to parity with the US dollar, increasing the pressure on manufacturing and service industries such as tourism and education.

The rises will also increase the gap in performance between the resource-rich states and the southeast states.