High coal freight rates expected to continue until 2006

Freight rates for coal is projected to remain at high level until 2006, driven mainly by strong bulk carrier demand from China to fuel its growing economy, an executive from Indonesian top coal miner said.

"The main driver for strong dry bulk cargoes rates to continue to go up is China's appetite for base metals, especially iron ore, will continue as the country's economic growth is expected to be maintained at high level," Chistoper Pitch, Adaro Indonesia's Chartering Manager told Petromindo.Com in an interview last week.

Other factors that contribute to support the trend, said Pitch, included coal loading and shipping delays, which helped to boost freight rates even higher. Ship queues outside Newcastle had more than doubled in the past year to an average of 41 in January, while at Dalrymple Bay terminal in Queensland queues have gone from zero to as high as 15. "The long queue soaked up vessel availability," said Pitch.

Beside vessel scarcity factor, fundamental demand on coal in on the increasing mode, said Pitch. Asian appetite for coal is strong. "Japan is getting out of recession, which mean more coal consumption, while India and Malaysia are also burning more coal. South Korea is also scrambling to find overseas coal to find alternative source as China is cutting down supply. Coal consumers are doubly hit by high coal prices and high freight rates."

"Last year, time chart for Panamax ranged between US$12,000-$15,000 per day. Now, it stands between $35,000-$40,000 per day. Tow years ago, charter rate for Panamax was as low as $6,000 per day," said Pitch. "Last year Cape size vessel time charter rate was $25,000 per day. Now it is around $100,000 per day," said Pitch.

Low fright price a year ago, said Pitch, gave no incentive to shipowners to order for new vessels. As a result, there is not sufficient capacity addition come to the market. "Beside, shipyards are busy with orders to build tankers and container carriers," said Pitch. He added that new dry bulk carriers capacity addition would enter the market in 2006. "By then, I think, rates will eventually start to go down," said Pitch.

Pitch said combination of high coal prices and high freight rates affect Indonesian coal producers less compared to their Australian and South African counterparts. "Relatively speaking, Indonesian coal producers are less affected, since Indonesian coal, which are environmentally friendly," are mostly used as blending. Therefore consumers will continue to buy Indonesian coal regardless of price. Otherwise they will have to install expensive to reduce pollution caused by burning coal," he said.

He said Adaro is continuing to export coal to the US and Europe. "Our US and European consumers can not operate without our coal. I think the same is also happen to Kideco Jaya Agung, which continue to sell coal to Europe," said Pitch. The contrary, said Pitch is happen to Australian and South African producers. "Australian coal export to Europe had gone down sharply, and South African export to Asia-Pacific is also down, both because of high coal and freight prices,' he said. (alex)