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

Source: Mineweb

Coal prices are surging on the world market in the face of anticipated tight supply, and Asian private investors are already flirting with the commodity known for its environmental unfriendliness.

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 path with prices surging in the face of shortages and anticipations that no major producers will up supplies in the next two years.

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

Prices at Australia's port of Newcastle, a benchmark for Japan, South Korea and Taiwan, jumped almost 75% over the past year to a 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 exporter Macarthur Coal Ltd. and Wesfarmers Ltd. that it would not be able to meet contract supplies from some mines in the Queensland state after heavy rain, Bloomberg reported Tuesday.

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

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 delivery to Amsterdam, Rotterdam or Antwerp with settlement from April through to the end of June gaining 1% to US$125 per metric ton in New York yesterday, Bloomberg reported quoted statistics from ICAP PLC.

It also said deliveries to Amsterdam, Rotterdam and Antwerp for settlement next year rose 5.7% to $US112.25 per metric ton in London.

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 week's price.

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

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 domestic electricity shortage following the big freeze. On Friday, China - whose hunger for energy has impacted negatively on its export capacity - left its Japanese customers in confusion after it announced that exports were to be cut off for two months.

 "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 analyst at Société Générale in Paris, was quoted as saying by Financial Times.

He added that the coal market was already tight before the recent supply disruptions and it would take weeks before supply and demand balanced and prices eased.

Nevertheless, coal's fortunes point to a silver lining following years of negative publicity transforming supply from abundance to scarcity due to growing energy demands in China and India.

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

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

Bloomberg also said Weglokoks SA, Poland's largest coal exporter, had reported on Tuesday that it had no supplies available to sell to clients without existing contracts.

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

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

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

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