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Selasa, 12 Juli 2011

SEA Coal Sector Raising long-term coal price assumptions - Credit Suisse

● CS global mining team in 3Q11 Commodities Quarterly raised its thermal coal price assumptions by 17% and 49% for 2013 and 2014, respectively. The team kept 2011 and 2012 forecast relatively unchanged at US$124/t and US$130/t, respectively.
● Beyond 2012, our significant upgrade of the price outlook is based on our view that supply expansion would fail to adequately meet China’s needs. As such, Chinese demand tonne will dictate price directions. We believe seaborne thermal coal prices will effectively become a China CPI-linked annuity, at least for the next five years.
● Shorter term, we expect thermal coal price in 3Q to be well supported with more promising outlook into 4Q11. Seasonal demand should improve from India, China, Japan and EU ahead of winter. We forecast a US$10/t rally into the year-end.
● Indonesian producers will benefit from the huge import demand from China. Our sensitivity analyses indicate 11-28% earnings upside in FY13 with 17% increase in CS’s coal price assumptions to US$141/t. We maintain OUTPERFORM on ITMG, INDY and
PTBA. SAR looks attractive on 2013E earnings.

Upgrade coal price from 2013 onwards
We are significantly upgrading our pricing outlook beyond 2012. We believe insatiable Chinese domestic demand (CAGR 8-12% range), evident in seaborne markets since April 2009, has become a game changer for the seaborne industry. We believe planned mine expansions across the US, Canada, Colombia, Russia, Mongolia, Australia, South Africa and Indonesia in particular, and also within Chinese domestic markets, will fail to adequately meet China’s huge energy consumption requirements. As a result, the Chinese demand tonne will dictate price directions, which in turn will be driven by Chinese macro policy directions regarding annual CPI hikes.

Seaborne prices to be determined by China’s CPI hikes We completely rework the way we think about future thermal coal pricing. Rather than fading seaborne prices in 2014-2015 as supplies increase, we believe seaborne thermal coal prices will effectively become a China CPI-linked annuity, at least over the next five years.
We are a little frightened to consider the implications of where thermal prices might ultimately end, should this scenario hold true into 2020- 2025 as well. For now, we have left long-term China CFR prices at US$150/t, a substantial lift from our previous US$110/t. This will have significant implications for coal miner valuations and capital allocation decisions between thermal and met coal projects, in our view.

Short-term price well supported with US$10/t rally to 4Q 3Q prices should remain well supported, given an 8% QoQ EU piped gas price hike and Germany’s need to find permanent alternatives to fill the Merkel nuclear void (equivalent to 24 mtpa coal). Demand recovery with Japanese utilities back on-stream should also support
prices. However, the slackening in Chinese summer air-con demand across August-September and potential increases in Indonesian supplies should remain offsetting the downside risks. Price prospects look far more promising into 4Q, as Indian demand exits its Monsoonhydro dependency and China, Japan and EU begin restocking for winter. A further 9% QoQ increase in Gazprom piped gas prices would give thermal coal even more substitution wiggle room. Meanwhile, the amount of additional coal purchased by Germany remains to be seen.

As a result, we forecast a US$10/t rally into year-end, weighted into 4Q. OUTPERFORM maintained on ITMG, INDY, PTBA Indonesian producers will benefit from huge import demand from China. Our sensitivity analyses indicate 11%-28% earnings upside in FY13 with 17% increase in CS’s coal price assumptions to US$141/t.
We maintain OUTPERFORM on ITMG, INDY and PTBA. SAR looks attractive on 2013E earnings. We maintain our earnings forecast for all coal companies pending more information on 2Q11’s production data, which is due in the next two weeks.

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