Shortages force Asian coal to new high

Shortages force Asian coal to new high

By Javier Blas in London

Published: January 29 2008 00:54 | Last updated: January 29 2008 00:54

Coal prices in Asia jumped to a record high on Monday as the region suffered acute shortages because of disrupted supply in Australia, South Africa and China.

Cold weather, meanwhile, increased regional demand for power and hampered the transport of coal in China.

Weekly prices for the regional benchmark, Australia’s Newcastle coal, rose to $93.35 a tonne, up almost 75 per cent in the past year, according to the GlobalCoal trading platform. Analysts reported daily prices on Monday at over $100 a tonne.

The impact is spilling into other regions, with coal costs rising sharply in the US, Latin America and Europe. Rotterdam spot coal prices, the European benchmark, jumped to $130 a tonne, up from $68.5 a tonne a year ago.

Supply issues

Australia: Mining companies in Australia, the world’s largest producer, announced force majeure at several mines last week after flooding in the state of Queensland. Among those was one owned by BHP Billiton and Mitsubishi, which produce nearly half of Australia’s coal exports.

South Africa: Coal mines here, which produce about 10 per cent of the world’s coal exports, were evacuated last week after the country had extensive electricity blackouts. Some mines have restored production since then, but others are still halted.

China: Miners and port authorities were told last week to stop coal exports for two months to ensure the local market remains well supplied and to help end a severe power crisis.

In the short term, the price rises will raise the cost of electricity generation. The price rises also cast doubt on the long-term sustainability of coal as a cheaper option to fuel power stations than crude oil and natural gas.

The coal industry has witnessed a renaissance in the past five years, thanks to the development of so-called clean-coal technologies that reduce carbon dioxide emissions, and because coal is relatively abundant in Europe and the US. It has been presented as a more secure alternative to reliance on Middle East-dominated oil supplies.

But coal’s recent success has pushed up demand. The market has turned from one of abundant and cheap supplies to one of more scarce resources, in which even small supply disruptions can force large price jumps.

Emmanuel Fages, a coal analyst at Socie'te' Ge'ne'rale in Paris, said the coal market was already tight before the recent supply disruptions. It would take weeks rather than days, he said, before supply and demand balanced and prices eased.

“We will not see a downturn in prices, but we will see an easing after some weeks, starting in March or April,” Mr Fages added. On top of rising demand in China, the coal market is facing a short-term increase in consumption in Japan, as the country’s power utility, Tepco, relies more heavily on its coal thermal power plants to offset the impact of the closure of the Kashiwazaki-Kariwa nuclear plant after an earthquake in July.

The company imported 400,000 tonnes of coal last month, more than double the 187,000 tonnes it bought in December 2006.

Japanese and South Korean utilities are buying on the spot market to secure supplies after China imposed a ban last week on coal exports to keep its local market better supplied.

The coal market’s tightness and the supply disruptions suggest that the outcome of the current annual secretive price negotiations between the mining companies and the Japanese steelmaking industry will result in much higher prices.