Coal crunch hits Asia as prices surge
Floods in Australia, freezing weather in China and transport bottlenecks in Indonesia have helped stoke a sharp rise in the price of coal, putting pressure on Asian consumer industries.
Soaring demand from China and India as their economies steam ahead has also combined to push the cost of the fuel to record highs, analysts say.
Australia's Newcastle coal, the regional benchmark, rose to more than 90 US dollars a tonne in January from 75 dollars in October according to the globalCOAL trading platform, an increase of 20 per cent in four months.
But even as Japanese steelmakers and South Korean power companies feel the squeeze, producers are struggling to capitalise fully on the price surge.
Australian coal miner Coal & Allied Industries Ltd said Tuesday its 2007 bottomline was almost halved to 97.16 million US dollars amid infrastructure constraints and flooding in the key Hunter Valley mining region.
Australia is the world's biggest exporter of sea-borne coal but producers will miss out on billions of dollars in revenue in the next 10 years due to inadequate rail and port infrastructure, analysts say.
Ships are queuing for weeks to load coal at ports in Queensland and New South Wales due to limited capacity and restrictions on the amount of coal that producers are allowed to transport to port by rail.
"This is just huge and unprecedented demand," said Bede Boyle, a member of the AustCoal Consulting Alliance and a director of Synergy Management Consulting Group.
"Nobody anticipated it, no-one saw it coming," he told AFP.
"The driver for all this is China. We're getting huge demand from Japan, Taiwan and Korea but it seems to be on the back of the Chinese growth.
"The other thing that has come into the equation, which has hit Indonesia in a big way, is demand for thermal power in India driven by imported coal."
Indonesian Mining Association executive director Priyo Pribadi told AFP the world's largest exporter of thermal coal was benefitting from high coal prices but transport shortfalls were putting a brake on growth.
"The supply problem is because of a lack of transportation. From the mining side, we don't have any problems. It's only from the port side -- going to the market -- that's the real problem," he said.
In China, freezing weather has sharply raised demand for coal, which is the source of about three-quarters of China's energy. Beijing has ordered a temporary halt to coal exports, Boyle said.
"China was a coal net exporter in the previous years," said Zhang Guangyu, a Beijing-based analyst with CITIC Securities.
"In the first six months of last year, it became a net importer of coal."
He said rising international prices could add pressure on steelmakers as coking coal made up a large part of China's imports.
"Domestic production cannot meet the rather large demand for certain types of coal, for example, the coking coal."
In Japan, major steelmaker Sumitomo Metal Industries said last week it would raise prices of seamless steel pipes by 15 per cent partly due to rise in the cost of resources, including coal.
Taiheiyo Cement, one of the world's largest cement manufacturers, said it would have to hike prices "significantly" because the annual price negotiations with coal producers were tough.
"Although the negotiations are still under way, it is certain that the next financial year's contract prices will be higher than this year, so we are planning to pass it on to customers," a spokesman for Taiheiyo Cement told AFP.
The price of South Korea's coal imports jumped from 24.7 dollars per tonne in 2003 to 60 dollars last year, according to the Ministry of Commerce, Industry and Energy (MOCIE).
"Power companies are being squeezed by high coal prices.
Some of the five power companies using coal are expected to slip into the red this year," an official of Korea Electric Power Corp. told AFP.
Taiwan's state-run Taiwan Power Company, the single biggest coal consumer on the island, said the disruption in coal supplies had affected the company.
Taipower spokeswoman Tu Yueh-yuan told AFP. "If the short supplies continue into April, Taipower's coal reserves may drop to the 37-day level from the present 45-day level," she said.
Taipower is required by the government to keep its coal reserves at a minimum 35-day level.
"The weakness in the whole system is that nobody foreshadowed the magnitude of the growth in the world coal markets," said Boyle.
With export infrastructure development lagging in producer countries as demand soars, "you can anticipate high prices until 2010 to 2011 until the situation starts to ease," he said. (AFP)
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