Prices for thermal coal, the coal most often used for electric power generation, are likely to continue rising and have surged enough in the past month to make the commodity more attractive to investors than oil or natural gas, according to a report in the most recent issue of Barron's.
''A perfect storm of severe weather affecting both supply and demand has driven benchmark prices of thermal coal in Europe, South Africa and the Asia-Pacific region up by around 10 percent,'' Barron's reported. Barclays Capital said there will be little respite from high coal prices in the short-term, according to Barron's.
Thermal coal prices lagged metallurgical coal for much of 2010 as investors and coal buyers remained apprehensive about the strength of the global economic recovery and its impact on power use. On the other hand, soaring emerging markets demand helped bolster metallurgical coal prices surge last year. Australian coal at the port of Newcastle, an Asian benchmark, was assessed on Dec. 24 at $124.75 a ton by London broker globalCoal compared with prices of around $100 per ton as recently as late October, Reuters reported.
Bank of America Merrill Lynch is forecasting higher prices for all grades of coal this year. ''Infrastructure bottlenecks mean it will take time for market tightness to ease, even after the weather returns to normal, making thermal coal a better near-term play than crude oil or natural gas,'' Barron's noted.