It is reported that demand for coal a key ingredient in steel-making is faltering a worrisome sign that industrial activity in Asia a major driver of global growth has weakened. The shift has caught coal producers by surprise.
Alpha Natural Resources Inc a major producer based in Virginia slashed its planned 2011 shipments of coal for steel making by as much as 12% on Wednesday citing in part unexpectedly curtailed business from Asian customers.
Weaker sales in the coal and steel sectors come as demand for other important metals, such as copper is also sliding lower. The price of copper which is considered a strong indicator of global economic activity is down more than 10%t from August and has fallen steadily lower this month. Steel and its inputs, including metallurgical coal are also viewed as important bellwethers of growth particularly for emerging markets like China that are industrializing quickly and heavily influence world prices of steel.
Jittery investors dumped coal stocks on Wednesday. Alpha Natural shares crashed 17%. Vancouverbased Teck Resources Ltd which produces about the same amount of metallurgical coal as Alpha Natural fell 5.8% to its lowest level since August 2010. The shares are down about 22% this month. One of the world largest miners, Rio Tinto PLC compounded the worry on Wednesday.
The company says it still has a full order book, but this week said cautious customers have delayed delivery on some orders. In a presentation to investors on Tuesday, it touted its strong balance sheet and a cash position that will allow it to withstand any near term decline.
Mr Tom Albanese Rio Tinto chief executive officer said “It is noticeable that markets are somewhat weaker than they were six months ago.”
Analyst Ms Meredith Bandy at BMO Nesbitt Burns said the volley of negative news muddies the prospects for coal and steel demand through the rest of this year. She said “The question is, how widespread is this.”
She added that the strong market reaction is indicative of how nervous investors are right now.
Ms Bandy pointed out that the weak demand for Alpha Natural coal was particular to India, rather than Asia as a whole or China in particular.
(Sourced from Globe and Mail)
