Demand for coal returns to form

Kalimantan Coal

FELIX Resources says traditional coal export markets in Japan, Korea and Taiwan are almost back to full strength, in a sign of improving health among the region’s biggest coal buyers.
After yesterday reporting a 42 per cent rise in full-year profit to $267.6 million, the miner said steel mills in the long-established markets had recently returned to at least 80 per cent capacity.
Managing director Brian Flannery said while this was a promising sign, the coming months would test the strength of the rebound in demand.
”They’re probably not back to 100 per cent, but they’re probably not far from it,” Mr Flannery said of the miner’s traditional customers.
Felix – the subject of a $3.5 billion takeover bid from China’s Yanzhou Coal – will pay a fully franked dividend of 50¢, the same as last year, on October 30. The takeover offer of $16.95 a share, plus a $1 dividend, is awaiting approval from the Foreign Investment Review Board and an independent assessment from Deloitte.
Mr Flannery said he expected the company would send takeover documents to shareholders for their consideration towards the end of the month, but would not comment on progress with the FIRB.
But in a sign the market remains sceptical the approval will be granted, Felix shares have traded below the offer price, yesterday closing 0.5 per cent lower at $17.26.
Until the recent improvement in coal markets, Felix was forced to sell its high-value coking coal, used to make steel, at a discount after steel mills cancelled orders.
With prices falling, China has stepped into the breach as a booming market for Australian coal, soaking up a third of the nation’s hard coking coal exports in July.
Some analysts have questioned how long Chinese demand would remain, but Mr Flannery said recent increases in the country’s steel capacity would require strong coking coal imports.
”If they’re running at 600 million tonnes of steel capacity then it seems to me they’re going to import a reasonable amount of coking coal,” he said.
The Felix board expects to approve the expansion of Yarrabee mine in Queensland if it can sign a further 500,000-tonne coking coal contract, which Mr Flannery expected to achieve in the coming months.

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