Sunday, July 6, 2008
"The world's major mining companies are operating with little slack in their production systems, making them vulnerable to interruptions and their customers subject to price spikes. ... 'We are in a period of extreme scarcity, which is uncomfortable,' says Marius Kloppers, chief executive of officer of BHP Billiton Ltd., the world's larget miner. 'Prices have risen basically because supply and demand is so tight.' This week, a strike in Peru is the latest threat to constrain the supply of copper, which alrady has been at record-high prices this year. ... 'This is an example of the tight-supply challenge; everything stays tight means everything is more vulnerable,' says Tom Albanese, CEO of Rio Tinto PLC, the world's third-largest miner. 'We should expect short-term supply shocks, because these supply chains are being driven by a range of complex issues.' ... Already, mines are battling longer-than-ever lead times to get equipment", my emphasis, WSJ, 13 June 2008.
"U.S. coal producers have been largely unable to meet growing demand because of a lengthy permitting process, lack of capital investment and a shortage of skilled miners, which will keep supplies tight and prices high. ... Paul Forward, a coal analyst with Stifel, Nicolaus & Co., expects demand for coal in the U.S. to outstrip supply this year by 15 million tons, in large part because of the increase in exports, which shot up 49% through April compared with last year. ... Up to 40 million tons of potential and anticipated coal production is being held back because of delays in obtaining environmental permits and new safety regulations, estimates David Khani, director of research at FBR Capital Markets Inc. in Arlington, Va. ... The spot price of Central Appalachian coal sold to both utilities and steelmakers has tripled in the past year. ... Industry officials say high operating costs are deterring small operators from opening mines to take advantage of high prices and help relieve supply constraints", Kris Maher (KM) at the WSJ, 24 June 2008.
Connie Yu, are you listening? Steve Waldman has a fine 25 June 2008 post at Interfluidity discussing oil prices and "Convenience Yield", www.interfluidity.com/posts/1214354098.shtml. Part of the oil price "mystery" is found here, real world "unabitrageable" problems. See also my 23 July 2007 post on just-in-time inventory.
KM, it would have been useful to tell us if the 40 million tons would be extracted over a number of years, or if you meant 40 million tons a year. Congress should look at this. Coal, like oil, does not just come out of the ground when one snaps his fingers, even if one is say, Nancy Pelosi.