Foundry Daily News

China's big freeze, Australia’s floods and South Africa's disruptions paint coal bright

Source: Mineweb

<font size="2">Coal prices are surging on the world market in the face of anticipated tight supply, and Asian private investors are already flirting with the </font><font size="2">commodity known for its environmental unfriendliness.</font>

<font size="2">It has been described as the dirtiest fossil fuel of all, but with the high costs of oil and natural gas, coal's time is now and it's on a resurgent </font><font size="2">path with prices surging in the face of shortages and anticipations that no major producers will up supplies in the next two years. </font>

<font size="2">Garbed in climate-friendly attire, environmentalists aside, coal prices have forged ahead these past weeks due to a combination of </font><font size="2">reasons. A temporary closure of coal mines in South Africa last week following a power crisis, floods in Australia and snow storms in </font><font size="2">China have restricted output, motivating power utilities to secure supply.</font>

<font size="2">Prices at Australia's port of Newcastle, a benchmark for Japan, South Korea and Taiwan, jumped almost 75% over the past year to a </font><font size="2">record US$93.35 per metric ton with a big rise in the last week. The move followed the announcement by the country's biggest coal </font><font size="2">exporter Macarthur Coal Ltd. and Wesfarmers Ltd. that it would not be able to meet contract supplies from some mines in the Queensland </font><font size="2">state after heavy rain, Bloomberg reported Tuesday. </font>

<font size="2">Quoting analysts, a Financial Times report Tuesday put Monday's daily prices at Newcastle at over US$100 per metric ton, adding that the </font><font size="2">shortages in Australia had also split into other regions, with coal costs rising sharply in the US, Latin America and Europe.</font>

<font size="2">Spot coal prices also at Rotterdam, the European benchmark, surged to US$130 per metric ton from US$68.50 a year ago, with coal for </font><font size="2">delivery to Amsterdam, Rotterdam or Antwerp with settlement from April through to the end of June gaining 1% to US$125 per metric ton </font><font size="2">in New York yesterday, Bloomberg reported quoted statistics from ICAP PLC. </font>

<font size="2">It also said deliveries to Amsterdam, Rotterdam and Antwerp for settlement next year rose 5.7% to $US112.25 per metric ton in London.</font>

<font size="2">Coal loaded at South Africa's Richards Bay terminal for the European market traded on Monday at US$105 per metric ton, up 5% on last </font><font size="2">week's price. </font>

<font size="2">South African coal mines were evacuated last Friday after the country experienced severe electricity blackouts. By Tuesday, Anglo </font><font size="2">American PLC, which has five operating mines in South Africa, was the only major coal miner in the country that had restored production </font><font size="2">at its mines.</font>

<font size="2">The price rises were compounded by China's decision to ban coal exports to Japanese and Korean power stations in its effort to solve its </font><font size="2">domestic electricity shortage following the big freeze. On Friday, China - whose hunger for energy has impacted negatively on its export </font><font size="2">capacity - left its Japanese customers in confusion after it announced that exports were to be cut off for two months. </font>

<font size="2">&nbsp;"We will not see a downturn in prices, but we will see an easing after some weeks, starting in March or April," Emmanuel Fages, a coal </font><font size="2">analyst at Société Générale in Paris, was quoted as saying by Financial Times.</font>

<font size="2">He added that the coal market was already tight before the recent supply disruptions and it would take weeks before supply and demand </font><font size="2">balanced and prices eased. </font>

<font size="2">Nevertheless, coal's fortunes point to a silver lining following years of negative publicity transforming supply from abundance to scarcity </font><font size="2">due to growing energy demands in China and India.</font>

<font size="2">It is not clear if coal producers will up their production. Primary exporters like Indonesia and Colombia may struggle to increase output as </font><font size="2">they have already indicated that they are already at their production capacity. </font>

<font size="2">Bloomberg reported on Tuesday that Indonesia's PT Bumi Resources and PT Berau Coal had indicated that they won't boost their supply </font><font size="2">due to government commitments and a lack of equipment, adding that PT Bumi Resources together with Xstrata PLC and Rio Tinto Ltd. </font><font size="2">would seek higher contract prices for 2008.</font>

<font size="2">Bloomberg also said Weglokoks SA, Poland's largest coal exporter, had reported on Tuesday that it had no supplies available to sell to </font><font size="2">clients without existing contracts. </font>

<font size="2">South Africa, which accounts for 10% of the world's exports, will not be able to meet its export commitments following state power utility </font><font size="2">Eskom's Monday request to coal producers asking them to provide an extra 5 million metric tons to stem the country's power crisis.</font>

<font size="2">"If these problems linger, there's going to be significant pressure on a market that was already robust," Bloomberg quoted Steven Leer, </font><font size="2">Chief Executive Officer of Arch Coal Inc., the second-largest U.S. Producer, as saying. </font>

<font size="2">The robust prices have also sparked a rush for coal stocks, especially in Asia. China Coal was reported on Tuesday to have attracted </font><font size="2">US$433 billion in share applications, which was 122 times more than the value of the stock on offer, as private investors scrambled to </font><font size="2">profit in the face of the country's extremely chilly weather.</font>

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