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Coal prices jump, hit by the perfect storm

Coal prices jump, hit by the perfect storm

Beijing: Coal prices have risen to a record this week in Asia as flooding in Australia, power cuts in South Africa and snow storms in China restricted output.

This contributed to electricity shortages in China, the world's fastest-growing major economy, and with the Lunar New Year holidays around the corner deep anger is growing around the nation at these critical power shortages combined with massive queues at train stations - up to 600,000 people are now waiting outside Guangzhou train station, for instance.

China is experiencing an acute power shortage with a nationwide electricity shortfall at 70 gigawatts, the equivalent of almost Britain's entire generating capacity.

State media has described the crisis as China's worst-ever power shortage. So worried is the government that on Friday it put in place a two-month ban on coal exports.

The Ministry of Communications said: "During the Chinese New Year and parliamentary meeting, all thermal coal exports will be suspended. Where there is a need, all international shipping capacity will be diverted for domestic transportation requirements."

The coal shortages have forced the five biggest electricity producers to close 90 power stations - with a combined capacity of more than 20,000 megawatts - in northern and central China.

Officials have ordered some mines, which had closed as part of a sweeping crackdown on unsafe collieries in which some 3,000 people die each year, to reopen if they are deemed now to have met safety standards.

The transport ministry has roped in two state shipping giants to help move coal more swiftly to southern China. As of Monday China Shipping Group has diverted six ships from its overseas shipping fleet to queue at the ports, while Cosco has diverted 11 vessels.

All major ports, including Qinhuangdao, China's largest coal terminal have been told report daily loading volumes to the ministry.

Things are set to get worse on the Chinese mainland, which burns coal to generate 78 percent of its electricity.

China's premier Wen Jiabao said the country's energy shortage, including coal and oil, will continue or even become worse due to the recent heavy snow and rain in Southern China. Many power stations now report coal reserves of under three days.

Most parts of central and southern China are set to suffer more inclement weather in the next few days with some provinces facing snowstorms, and transport and energy supplies thrown out of kilter.

"The top priority is to ensure electricity supply and smooth communications and transport by every possible means," the Politburo said in an urgent communiqué, urging local authorities to strive to increase coal output and ensure supply to power plants.

"Dealing with the current disaster is more complicated than floods, because freezing weather has restricted the mobility of relief forces and most of the affected areas are in mountainous areas," said Wang Zhenyao, director of the disaster-relief department of the Ministry of Civil Affairs.

Power-station coal prices at Australia's Newcastle port, a benchmark for Japan, South Korea and Taiwan, jumped 3.9 percent to a record US$93.35 a metric ton in the week ended on Friday. The price soared 73 percent in 2007. Quoting analysts, a Financial Times report Tuesday put Monday's daily prices at Newcastle now at over US$100 per metric ton

Coal for delivery to northwest Europe is trading within about six percent of a record.

Coal prices are gaining after Anglo American Plc, South Africa's second-biggest producer, stopped five of nine mines because power supplies couldn't be guaranteed by state utility Eskom Holdings Ltd. Coal loaded at South Africa's Richards Bay terminal for the European market traded on Monday at US$105 per metric ton, up 5% on last week's price.

In Australia, the world's biggest coal exporter, Macarthur Coal Ltd and Wesfarmers Ltd said they wouldn't be able to meet contract supplies from some mines in Queensland state after heavy rain.

"Even before these developments, spot prices for coal and coke were at record high levels," Macquarie Group analysts led by Jim Lennon said in a report. "Current price negotiations for annual contracts could be settled at much higher levels than previously thought."

Xstrata Plc, Rio Tinto Ltd and PT Bumi Resources will seek higher contract prices for 2008, with Australian coal likely to fetch more than US$100 a ton at loading ports, compared with US$55.65 a ton in 2007, Christine Salim, an analyst at Samuel Sekuritas in Jakarta, said in a note to clients yesterday. The global average may be US$80 a ton this year, and US$90 a ton in 2009.

JP Morgan yesterday raised its contract price forecast to $90 a tonne for thermal coal, a 61.7 per cent increase from last year's agreed price of $55.65 and a 28.5 per cent increase from its earlier forecast of $70.

"Given the strong growth in demand for seaborne coal with limited new supply, we see overall strength for the international coal market," JP Morgan's commodities analyst David George said in a research report issued on Tuesday.

"We believe it is the growing demand for imported coal into India that could have the greatest impact on the industry," George said. George said India's plans to bring on 40-50 gigawatts of thermal coal capacity, to add to the existing 60 gigawatts of generation, could result in additional imports of about 80 million tonnes per year.

He added that a developing drought in China could reduce the country's hydro power generation and raise its coal import demand in 2008. Supply growth was expected to remain muted as rising domestic demand in Indonesia and Vietnam could reduce their exports, but some replacement tonnage could be sought from Kazakhstan, the bank said.

JP Morgan also raised its forecast for 2008 coking coal prices to $140 a tonne, a 42 per cent jump from last year's agreed price of $98.38. Its previous estimate was $120 a tonne.

Bumi Resources, Indonesia's biggest coal supplier, and Yanzhou Coal Mining Co., a unit of China's fourth-biggest coal producer, both reached their highest stock prices in more than 10 days on expectation the disruptions will boost prices and earnings.

European coal prices increased 87 percent in the past year as utilities from Germany's E.ON AG to Enel SpA in Italy sought an alternative to increasingly dear oil and gas, and India stepped up imports from South Africa. The upcoming Year of the Rat may well be a black, sooty rodent.  [30/01/08]