With the recent much talked about Australian's coal-rich state of Queensland floods that may temporary halt production and export of high grade coking coal and to some extend may 'force' the international coking coal price to sky rocket to more than USD 300 per tonne in near future, we believe the situation is likely to affect SHA (plant in China) significantly.
Reason being SHA's metalurgical coke plant in Shandong Province, China buys and uses most of our coking coal from from China domestic mines which are located in Shandong, Henan and Shanxi provinces. Every year during winter season in North Eastern China, the normal domestic coking coal pricing trend tends to increase a little as the extraction rate from the mines are usually slower than expected. As part of SHA contingency plan, we usually increase our coking coal inventory during winter season by negotiating and purchasing cheaper coking coal in bulk from our raw material suppliers . For your information, SHA's usual coking coal inventory is about 50,000 tons but currently our coking coal inventory reaches as high as 170,000 tons (more that 3 times the usual level) or enough for more than 1 month use.
On the other hand, the rising crude oil price exceeding USD 90 per barrel is beneficial to SHA. SHA's two main by-products are crude benzene and tar oil which are oil-based. Therefore, the rising crude oil prices also 'push' up the selling prices of our by-products according. Overall, by-products contribute approximately 10-15% to SHA revenue. Therefore, we believe the higher coking coal inventory level and favourable by-products prices are able to mitigate any potential raw materials price hike in near future. Last but not least, we believe everyone is hopeful that the global economy could recover faster than expected in 2011 and return to 'the good old days' soon.