China's demand drives global coal prices up

China's hunger for coal to fuel its sizzling economy is leading the country to step up imports, transforming the once dirt-cheap commodity into the next black gold and pushing international prices up 50% this year, Reuters reported Friday.

The world?s largest producer, China will also cut back exports of coal next year to meet rising domestic demand while it cracks down on unsafe mining after a series of fatal disasters.

China is the world?s second-largest coal exporter, accounting for about 20% of world shipments. A cut in Chinese exports would drive up demand for Australian and Indonesian coal from large consumers such as Japan and South Korea.

?We have seen a lot of orders for imports from Indonesia and Vietnam to China next year,? said a senior official at COSCO (HK) Shipping, a unit of China?s largest shipping group.

Coal provides up to 70% of China?s energy needs.

As its economy grows more than 9% this year, the world?s second-largest energy consumer faces a power shortage and transport bottlenecks that could starve up to 200m Chinese of the coal required to heat their homes. Analysts said China?s combined imports of thermal and coking coal were heading for 18m tonnes this year, up 64% from 11m in ?03.

With demand growing, the price of thermal coal used for power generation had risen 50% to more than $60 a tonne since the start of the year, analysts said. Term prices for coking coal, the form used in steel production, were set to almost double next year, to $100 a tonne or above from below $60 this year, they said.

China remains a net exporter of thermal coal, which fires three quarters of its massive power industry. But it has switched to a net importer of coking coal, to help feed growth of more than 20% this year in what is the world?s largest steel sector.

Analysts said net imports of coking coal to China would be about 5m tonnes this year, climbing to 7m in ?05. Historically, China has been a net exporter of about 10m tonnes a year. China has set its ?05 export quota, for thermal and coking coal combined, at 80m tonnes.

While China has large reserves, low domestic prices before this year have starved the industry of investment in production facilities. (*)