Regional Coal: Rising demand focus of coal sector meet

Coal producers, customers and investors are meeting at a conference in Nice, France, amid optimism the fuel, source of about a quarter of the world's energy, will remain attractive as power demand increases, China Daily reported Tuesday.

Benchmark contract prices for Australian thermal coal used in power plants will probably rise 11 percent next year, according to Energy Economics Pty, spurred by demand in China, the world's biggest user. Hard coking coal used by steelmakers such as Arcelor SA may gain 29 percent, the Sydney-based consultant said, China Daily reported Tuesday.

"The whole perception that coal was going to disappear was always impractical," said Clyde Henderson, an analyst at Energy Economics. "We've got something like 200 years of reserves at current production levels, and that kind of energy source is not something which can be ignored."

Coal will still meet 22.5 percent of world energy demand in 2025, compared with 23.8 percent in 2001, the US Energy Information Administration estimates. Demand last year rose faster than for any other fuel, according to London-based BP Plc, with China burning about a sixth more than in 2002.

Thermal coal from South Africa is selling for about US$56 a metric ton, 54 percent higher than a year ago, as producers, customers and investors meet for the two-day McCloskey's European Coal Outlook Conference. Annual contract prices in the Japanese fiscal year starting in April should rise to US$50 a ton from US$45 this year, Energy Economics said.

South African coal prices in the so-called spot market reached a record US$70.95 in June, according to globalCOAL, the London-based operator of a Web site for coal traders. The increase came even as global exports rose 7.5 percent in the first half, Macquarie Bank said in an August 30 report.

The globalCOAL RB Index of coal delivered within three months from Richards Bay was at US$55.84 a metric ton last week. The globalCOAL NEWC Index, for coal from Australia's Newcastle port was at US$54.75 a ton.

Power producers are burning more coal in part because of rising prices for alternatives. In the UK, Western Europe's largest natural-gas market, gas sells for twice as much as a year ago, according to traders. Crude oil futures traded in London are up 62 percent.

"Coal is extremely good value compared with other fossil fuels," said Ian Henderson, manager of the US$330 million J.P. Morgan Fleming Natural Resources Fund in London. "Coal is probably the easiest one to expand production from because there are plenty of known coal resources."

Henderson said he has increased his holdings in producers such as Zug, Switzerland-based Xstrata Plc, the world's biggest thermal-coal exporter, and PT Bumi Resources of Indonesia. Both companies' shares reached record highs on Friday.

Xstrata has climbed 39 percent this year, beating larger rivals BHP Billiton, up 14 percent, and Rio Tinto Group, down 6.2 percent. Xstrata was up 3 pence, or 0.3 per cent, to 878 pence in London at 8:02 am yesterday, giving it a market value of 5.5 billion pounds (US$9.9 billion).

China and India, together home to more than a third of the world's people, may sustain coal demand for the next two decades, making up for any decline in Western Europe, the EIA in Washington estimates. China gets 67 percent of its power from coal and may use 12.5 percent more this year, according to the Energy Research Institute, a Chinese Government think tank.

"We haven't seen any slackening off in the level of interest," said Tony Macko, general manager of treasury and risk management at Centennial Coal Co in Sydney. "It's coming from all over the place - India, as well as our regular markets in Japan and South Korea."

European countries such as the UK, the world's fourth-largest coal user, are trying to burn less of the fuel to curb emissions of gases blamed for global warming. The UK, which has been closing coal pits for decades, will probably import 11 per cent more this year than in 2003, Energy Economics estimates.

In Japan, utilities burned more coal this year after nuclear plants shut for safety inspections. Norway and Sweden last year had to buy more power from coal-fired plants in Denmark because unseasonably dry weather curbed supplies at hydroelectric dams.

In the US, President George W. Bush is backing an energy bill that would provide US$200 million a year through 2012 to develop cleaner burning coal power plants.

One obstacle to meeting coal demand is a lack of rain and port capacity. In the first eight months of the year, South Africa's Richards Bay Coal Terminal exported 4.9 percent less coal than a year earlier because of derailments.

Australia's Newcastle Port Corp, the world's biggest coal-export port, introduced a quota system for ships in April to cut queues. It's now studying how to boost exports by as much as a quarter within five years to supply China.

"Transport infrastructure in Australia and South Africa is groaning," said Ric Ronge, who helps manage US$1.4 billion at Invesco Asset Management in Melbourne, including mining stocks. "We see thermal coal up." (*)