BackLocal demand, clogged ports may push coal prices up
Local demand, clogged ports may push coal prices up
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Jakarta: Asian coal prices are likely to rise due to a number of reasons including strong domestic demand in China and Indonesia as well as congestion in Australian ports, analysts and industry executives said at a coal conference on 27 March.
“Far Eastern prices will be firm thanks to shortages in China and a continuing increase in demand in India and Korea," Colin Gubbins, director of consultancy The McCloskey Group (TMG), told the McCloskey Asian coal conference in Jakarta.
Kaz Tanaka, vice-president and director of PT Arutmin Indonesia, a unit of PT Bumi Resources Tbk, said coal supply to the Asian market had been hampered by queues at Australian ports.
“Demand for coal has been fuelled by the growing economies of China and India," Tanaka said.
Benchmark Australian coal spot prices fell to a two-month low this week but Gubbins forecast prices will still pick up.
Demand from China and India will grow by 47.6% and 17%, respectively, this year, leading to a 6.1% increase in demand in Asia to 325 million tonnes (mt) in 2007, Gubbins said.
Gubbins added there was a risk of the Atlantic coal market being oversupplied in 2007 but added that the Asian market was “on fire—only Indonesia can douse the flame of shortage".
Indonesia is among the world’s top coal exporters, along with Australia. Indonesia’s coal production is seen rising to 370mt in 2025 from 193mt last year, energy ministry data shows.
However, conference delegates said most of Indonesia’s rise in output is likely to be absorbed by domestic consumers—exports are expected to increase only slightly to 150mt in 2009, from 148mt last year, and will stay at the 150mt level until 2025.
Richard Anderson, coal technology manager of PT Multi Resources Indonesia, said that as well as rising domestic demand, Indonesian miners will also face higher costs in future.
“The challenge to the industry will be how to manage mining costs and especially logistics as mining moves to remote locations," Anderson said.
Faced by lengthy ship queues at Australia’s Newcastle port, tightening Chinese supplies due to internal demand and limited Indonesian tonnage due to months of rain, Asian buyers have been forced to buy high quality coal from faraway countries such as South Africa.
The McCloskey Group forecast demand from China at 15.5mt this year, likely to climb to 18.5mt in 2008, while it sees India’s demand at 34.3mt in 2007, rising to 38.4mt next year.
Meanwhile, PT Bumi Resources, Indonesia’s largest exporter of coal burned in power plants, started sending seven million tonnes (mt) of the fuel a year to India to tap rising demand in Asia’s fourth-biggest economy.
Bumi made the first delivery in the five-year contract in January to the Adani Group,PT Arutmin’s Tanaka told reporters on Tuesday.
The fuel is of the so-called low rank type, which is cheaper because it produces less energy, he said.
This comes from “our efforts to ramp up production to supply increasing demand" in countries including India, China and Indonesia, Tanaka said.
High crude oil prices and surging prices of thermal coal, used to generate electricity, have pushed Asian countries to start utilizing lower-energy, inferior coal. Typically, this kind of coal produces less than 5,000 kilocalories for each kg burnt.
Indonesia plans to add 20,000MW of coal-fired power capacity by 2010 to cut generation costs and subsidies.
PT Arutmin Indonesia, one of the coal-producing units of Bumi, has a contract to supply 10mt of low-grade coal a year to state utility PT Perusahaan Listrik Negara by 2010 at the latest, Tanaka said. The contract is for 20 years.
Bloomberg contributed to this story
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