Beijing/Jakarta: Coal is poised to rebound from a two-year slump as China buys more than it exports for the first time in history. Power use in China, the world’s biggest coal producer, is rising 13% annually, and utilities are building plants at a record pace. The nation gets 78% of its electricity from coal, spurring imports from Australia, Indonesia and Vietnam.
“The coal sector in China has undergone a change,” said Mark Mobius, who oversees $30 billion (Rs12,600 crore) at Templeton Asset Management Ltd in Singapore. Mobius says Asian coal prices may surge 42% in five years.
Rising prices for the biggest fossil fuel, after oil, would drive power costs higher from Tokyo to London and benefit mining companies Xstrata Plc, Rio Tinto Group and BHP Billiton Ltd. Consumers such as Tokyo Electric Power Co. and RWE AG of Germany will pay more, hurting profit.
Annual coal contract prices in Asia may surpass all-time highs in the next 12 months. Deutsche Bank AG analysts led by Peter Richardson in Melbourne predict $58 a tonne next year and $59.50 in 2009, from about $55.50 for the year that started 1 April. New York-based Goldman Sachs Group Inc. expects $56 next year.
Coal last traded at $54.50 a tonne for shipments from Newcastle, Australia, down 16% from a peak of $63.10 in June 2004, according to the McCloskey Group Ltd, a coal consulting company in Hampshire, England.
Goldman Sachs, the world’s biggest securities firm by market value, forecasts that higher coal prices will cause a 22% gain in the shares of Xstrata, based in Zug, Switzerland, the world’s largest exporter of coal used in power plants. The stock may rise to £33.65 ($66.87) from £27.66 as of last week, Goldman Sachs says.
Costs for shipping bulk commodities already are rising because of coal. At Newcastle, the world’s biggest coal-loading port, a record 71 vessels sit offshore waiting to load because producers can’t fill the orders fast enough.
The Baltic Dry Index, the benchmark for commodity-shipping costs, has risen 26% this year to 5553, following an 80% surge in 2006 on London’s Baltic Exchange.
China, which mines more than twice as much coal as the US, the next biggest producer, uses the fuel to generate 622 gigawatts of electricity. Plants built in China in the last year alone generate enough power to supply the UK.
The government’s closure of unsafe and illegal mines that killed 5,986 workers in 2005, is adding to the pressure on coal prices. Regulators shut 8,300 in the two years through 2006 and plan another 1,700 shutdowns by the year-end, Li Yizhong, vice minister of state administration of work safety, said at the China Coaltrans Conference in Beijing on Monday.
China’s purchases of coal in January exceeded exports by 1.4 million tonnes (mt), the first time that happened, data from the Beijing-based General Administration of Customs show. While the trend reversed in February, the impetus for imports to rise is unstoppable. By 2010, demand may reach 2.6 billion tonnes, 270mt more than last year’s output, the government said.
“We have been forecasting that China’s exports will fall, and it has come to that, even more rapidly than we expected,” said Clyde Henderson, a coal analyst at Energy Economics Pty in Sydney.
Any turnaround to net purchases this year would come three years sooner than predicted by the Australian Bureau of Agricultural and Resource Economics, the government forecaster in the world’s second-biggest exporter of thermal coal. Datang International Power Generation Co., the second-largest Chinese power producer with a Hong Kong stock-exchange listing, is among the buyers.
“Coal imports will account for about 10% of our total demand,” said Bai Fugui, fuel procurement manager at Beijing-based Datang. Datang’s generators burn about 60mt a year, more than what is used in the UK, Europe’s second-largest economy. He said he’s buying coal from Indonesia and Vietnam this year.