Coal Surge Seen by Mobius as China's Imports Increase (Update2)
By Michele Batchelor and Leony Aurora
April 16 (Bloomberg) -- Coal is poised to rebound from a two-year slump as
China buys more than it exports for the first time in history.
Power use in China, the world's biggest coal producer, is rising 13
percent annually, and utilities are building plants at a record pace. The
nation gets 78 percent of its electricity from coal, spurring imports from
Australia, Indonesia and Vietnam.
``The coal sector in China has undergone a change,'' said Mark Mobius, who
oversees $30 billion at Templeton Asset Management Ltd. in Singapore. Mobius
says Asian coal prices may surge 42 percent in five years, boosting China
Shenhua Energy Co., the biggest coal company, China Coal Energy Co. and
Yanzhou Coal Mining Co.
Rising prices for the biggest fossil fuel after oil would drive power
costs higher from Tokyo to London and benefit mining companies Xstrata Plc,
Rio Tinto Group and BHP Billiton Ltd. Consumers such as Tokyo Electric Power
Co. and RWE AG of Germany will pay more, hurting profit.
Annual coal contract prices in Asia may surpass all-time highs in the next
12 months. Deutsche Bank AG analysts led by Peter Richardson in Melbourne
predict $58 a metric ton next year and $59.50 in 2009, from about $55.50 for
the year that started April 1. New York-based Goldman Sachs Group Inc.
expects $56 next year.
Newcastle Shipments
Coal last traded at $54.50 a ton for shipments from Newcastle, Australia,
down 16 percent from a peak of $63.10 in June 2004, according to the
McCloskey Group Ltd., a coal consulting company in Hampshire, England.
Goldman Sachs, the world's biggest securities firm by market value,
forecasts that higher coal prices will cause a 22 percent gain in the shares
of Xstrata, based in Zug, Switzerland, the world's largest exporter of coal
used in power plants. The stock may rise to 33.65 pounds ($66.87) from
27.66 pounds as of last week, Goldman Sachs analysts say.
Costs for shipping bulk commodities already are rising because of coal. At
Newcastle, Australia, the world's biggest coal-loading port, a record 71
vessels sit offshore waiting to load because producers can't fill the orders
fast enough.
The Baltic Dry Index, the benchmark for commodity-shipping costs, has
risen 26 percent this year to 5553, following an 80 percent surge in 2006 on
London's Baltic Exchange.
China's Power
China, which mines more than twice as much coal as the U.S., the next
biggest producer, uses the fuel to generate 622 gigawatts of electricity.
Plants built in China in the last year alone generate enough power to supply
the U.K.
Si Posen, an expert at the China Coal Information Institute, said the
Chinese never had to look outside the country for the fuel since 10,000
years ago at the time of the New Stone Age, or Neolithic Era.
``People in Shanxi, now the largest coal production base, have been
burning coal as fuel since then,'' Posen said in a telephone interview from
Beijing. ``China had been self- sufficient since it started producing
coal.''
The government's closure of unsafe and illegal mines that killed 5,986
workers in 2005, or more than 16 people every day, is adding to the pressure
on coal prices. Regulators shut 8,300 in the two years through 2006 and plan
another 1,700 shutdowns by year-end, Li Yizhong, vice minister of state
administration of work safety, said at the China Coaltrans Conference in
Beijing today.
Imports Increase
China's purchases of coal in January exceeded exports by 1.4 million tons,
the first time that happened, data from the Beijing-based General
Administration of Customs show. While the trend reversed in February, the
impetus for imports to rise is unstoppable. By 2010, demand may reach
2.6billion tons, 270 million tons more than last year's output, the government
said.
``We have been forecasting that China's exports will fall, and it has come
to that, even more rapidly than we expected,'' said Clyde Henderson, a coal
analyst at Energy Economics Pty in Sydney.
Any turnaround to net purchases this year would come three years sooner
than predicted by the Australian Bureau of Agricultural and Resource
Economics, the government forecaster in the world's second-biggest exporter
of thermal coal. Datang International Power Generation Co., the
second-largest Chinese power producer with a Hong Kong stock-exchange
listing, is among the buyers.
``Coal imports will account for about 10 percent of our total demand,''
said Bai Fugui, fuel procurement manager at Beijing-based Datang. Datang's
generators burn about 60 million tons a year, more than is used in the U.K.,
Europe's second- largest economy. He said he's buying coal from Indonesia
and Vietnam this year.
Asian Prices
The increase in China's imports will help lift prices in Europe by forcing
consumers to buy more from South Africa and Russia. Coal prices in Europe
have risen to about $70 a ton from around $52 at the end of 2005, according
to McCloskey Group.
U.S. buyers will be insulated from higher prices by the nation's own
supplies, said Richard Price, president of Westminster Securities Corp., a
St. Louis-based investment bank.
``China's net exports have been declining and can be expected to further
decline, offset by Indonesian, Australian and Vietnamese imports, but not
any significant volume of U.S. exports,'' he said. U.S. eastern coal
prices have fallen to around $41 a ton from $57 at the end of 2005,
according to data compiled by Bloomberg.
Last month, China Shenhua of Beijing said it will start buying Indonesian
coal because it's cheaper than shipments sent along China's coast. Prices
may rise ``gradually'' in the next few years before gaining ``drastically,''
Shenhua Chairman Chen Biting told reporters in Hong Kong March 26.
Mobius's Call
Shenhua will produce 400 million tons of the fuel by 2010, almost double
last year's total, President Ling Wen said in Beijing today.
Shenhua shares on the Hong Kong stock exchange have risen 50 percent in
the past year to HK$19.78, more than the 26 percent gain in the benchmark
Hang Seng index.
By 2012, according to Templeton's Mobius, prices may reach $78, surpassing
the record $63.10-a-ton spot price on June 25, 2004, when shortages prompted
China to restrict exports.
``The prospect of China being a net importer of thermal coal as early as
2008 has placed material upward pressure on the outlook,'' Deutsche Bank,
Europe's biggest investment bank by revenue, said in its report. The outlook
``has improved significantly.''
Indonesia, the world's biggest exporter of coal, is increasing output to
respond to demand and higher prices. In February, Indonesia accounted for 41
percent of Chinese imports.
Insufficient Supply
``China and India are both very active in looking for coal here, and
people are getting greedy,'' Jeffrey Mulyono, head of the Jakarta-based coal
mining association in Indonesia, said in an interview April 4. ``They want
to take any type of coal.''
Mulyono said Indonesia will boost exports 11.4 percent to 165 million tons
this year, from 148 million in 2006.
Asian power generators will increase coal orders by more than 300 million
tons in the next three to four years because of economic growth, said
Nalinkant Rathod, commissioner at Jakarta- based PT Bumi Resources, Asia's
third-largest coal miner. China will raise consumption by at least 200
million tons, he said. China's gross domestic product grew 10.4 percent in
2006, the fastest among major economies.
``That creates a gap in the supply position as demand is very large but
supply is not very encouraging,'' Rathod said on April 4. Prices will
``spike when people can't fill the gaps.''
Bumi, Indonesia's biggest coal exporter to power plants, forecasts
shipments to China will double to 2 million tons this year, Dileep
Srivastava, head of investor relations, said in an e-mail on April 9.
``There have been so many calls from China, seeking contracts to get coal
from us,'' Bob Kamandanu, president director of PT Berau Coal of Jakarta,
Indonesia's fifth-largest producer, said in a phone interview April 9. ``We
have contracts to supply about 1.5 million tons of coal a year to China
and expect this to double within three years.''
To contact the reporters of this story: Michele Batchelor in Beijing at
[EMAIL PROTECTED] ; Leony Aurora in Jakarta at
[EMAIL PROTECTED] .
*Last Updated: April 16, 2007 02:13 EDT*
