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Goldman, Citigroup raise coal price forecasts

 SYDNEY, Feb 5 (Reuters) - Citigroup and Goldman Sachs
raised their forecasts for prices of coal used in power plants
and steel mills in 2008, citing extreme tightness as global
supply growth struggles to keep up with strong Asian demand.
 Goldman Sachs raised its contract price forecast for
thermal coal to $110 a tonne, a 98 percent increase from last
year's agreed price of $55.65 and up 22 percent from its
earlier prediction of $90.
 Citigroup said Japanese utilities such as Tokyo Electric
Power Co 9501.T and Chubu Electric Power Co 9502.T may need
to pay Australian miners $100 a tonne for coal contracts in
fiscal 2008 beginning in April.
 Both banks have forecast that coking coal, used to make
steel, will be $200 a tonne in 2008, up 104 percent from the
agreed price of $98 last year.
 "Spot thermal coal prices have soared in the past few weeks
in response to severe coal production and transportation
constraints in Australia, China and South Africa at a time when
power utilities are holding critically low inventories of
coal," Goldman Sachs JBWere's resource analyst Malcolm
Southwood said in a research report on Tuesday.
 "We believe that the factors that have driven thermal coal
prices higher in recent weeks will have a profound impact on
2008/09 contract negotiations."
 Spot prices for thermal coal, used for power generation,
have already shot up 37 percent so far this year to trade at
$130 a tonne last week, boosted by a series of supply
disruptions that happened within days of each other.
 STRONG DEMAND
 China, the world's largest producer and consumer of coal,
said on Jan. 25 it would halt exports in February and March
after the nation's worse snowstorms in 50 years disrupted
output and caused unprecedented power shortages across the
country.
 News of China's supply halt was immediately followed by
severe power shortages in South Africa, which forced miners to
shut their mines.
 Adding to a worsening global crunch, several Australian
producers last month declared force majeure on immediate coal
shipments due to recent heavy rain and floods in the key mining
state of Queensland.
 Citigroup's Alan Heap said strong demand from India, which
will depend on coal-fired power generation to power its
economic growth, will also soak up supplies from Indonesia.
 "Our analysis points to a continued tightness in seaborne
thermal markets extending to 2010," Heap said in a research
report issued on Tuesday.
 Australia is the world's largest exporter of coal,
exporting 257 million tonnes last year, mostly from mines
operated by Xstrata Plc XTA.L, BHP Billiton Ltd BHP.AX and
Rio Tinto Ltd RIO.AX.
 Recent floods in Australia's central Queensland have also
forced BHP Billiton Mitsubishi Alliance (BMA), among other
miners, to say they may miss deliveries.
 BMA, the world's largest coking coal exporter, said last
month that its coal operations might be affected for up to six
months.
 The series of force majeures from Australian producers have
caused spot prices of metallurgical coal to jump to about $211
a tonne, compared with about $100 a month earlier, Goldman's
Southwood said.
 Updated forecasts for '08 Asia thermal coal contract price
 ----------------------------------------------------------
 Goldman Sachs JB Were      $110
 Citigroup                  $100
 UBS                        $100
 JP Morgan                   $90
 Macquarie                   $88
 Merrill Lynch               $80
 National Australia Bank     $78
 (Editing by Ramthan Hussain)

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