Indonesia, Australia benefit from China coal supply shortage
Friday, December 19 2003 - 02:40 AM WIB
China's inability to export as much coal as usual means the power companies are turning to more costly coal from Indonesia and Australia, or buying more fuel oil to produce electricity, thus boosting their overheads.
Chinese coal suppliers defaulted on their December and January spot supply contracts with Taiwan Power, forcing the company to turn to fuel oil, a Taipower official said. The official said coal contracts that were defaulted were mostly for spot cargoes which it bought around $25-$26/ton.
The spot price for Chinese coal has shot up by about 60 percent or $15/ton free-on- board Qin Huang Dao, to about $39/ton since August because of the sharp reduction in Chinese coal supply and high local demand.
China is suffering from a coal shortage due to a combination of big increases in domestic power demand, the closure of many small mines, mine safety issues and transport logistical problems.
A large number of coal mines in northern Shanxi Province, one of China's big coal-producing regions, were closed in August for safety inspection following a series of deadly explosions. Coal production now in Shanxi province is estimated to be only two-thirds of usual output.
China has cut its monthly term and spot coal exports to Taipower by about 50 percent, or a total of 600,000 tons for December and January, the official said.
One third of Taipower's 22.93 million tons per year coal consumption comes from China, with the remainder from Australia and Indonesia.
Taipower has to rule out the possibility of importing more liquefied natural gas to make up for the coal supply shortage because a lack of spot LNG cargoes in the market, he said.
In South Korea, Korea Southern Power Co. is being obliged to pay more for Indonesian and Australian coal on a delivered basis than Chinese origin coal, a company official said.
Kospo awarded a recent 360,000-ton spot buy tender for January and February delivery to Australian and Indonesian suppliers, even though Chinese suppliers had the advantage of close proximity to the buyer, he said.
"The delivered coal price from Indonesia and Australia is more expensive than the Chinese price, but the Chinese suppliers are unable to participate in our tenders because of supply shortage," the official said.
Chinese coal is now priced at $39/ton free-on-board basis versus $35/ton fob for Indonesian coal.
However, freight rate from China to South Korea is only $7-$8/ton, compared with a whopping $18-$20/ton for the Indonesia-South Korea route.
Anticipating a lack of Chinese offers, Kospo is expected to award its ongoing 540,000-ton spot buy tender for Jan. 15 to Mar. 15 delivery to Indonesian and Australian sellers, the official said.
Kospo's sister company, Korea East-West Power Co., has also experienced disruptions in Chinese coal supply from August to November, but the supply is now back to normal, a company official said.
About 35% of South Korea's power generating capacitydepends on coal, 35% on nuclear power, 20% on LNG, and 10% on fuel oil.(*)