The price of 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 country 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 at Templeton Asset Management in Singapore. Mobius said Asian coal prices might surge 42 percent in five years, propelling shares of China Shenhua Energy, the biggest coal company in the country, as well as China Coal Energy and Yanzhou Coal Mining.

Rising prices for coal would drive power costs higher worldwide, hurting profit at companies like Tokyo Electric Power and RWE of Germany. But it would benefit mining companies like Xstrata, Rio Tinto Group and BHP Billiton.

Annual coal contract prices in Asia may surpass all-time highs within the next 12 months. Deutsche Bank analysts, led by Peter Richardson in Melbourne, predict prices of $58 a metric ton next year and $59.50 in 2009, from about $55.50 for the year that started April 1. Goldman Sachs Group said it expected $56 a ton next year.

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, a coal consulting company in Hampshire, England.

China, which mines more than twice as much coal as the United States, the next-biggest producer, generates 622 gigawatts of electricity with the fuel. Plants built in China in the past year alone generate enough power to supply all of Britain.

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 mines in the two years through 2006 and plan another 1,700 shutdowns by year-end, Li Yizhong, vice minister of a job safety agency, said at the China Coaltrans Conference in Beijing on Monday.

Chinese purchases of coal in January exceeded exports by 1.4 million tons, the first time that has happened, data from the General Administration of Customs show. While the trend reversed in February, the impetus for imports to rise is unstoppable. By 2010, demand may reach 2.6 billion 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 in Sydney.

The increase in Chinese imports will help lift prices in Europe by pushing 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 country’s own supplies, said Richard Price, a former coal company executive, now president of Westminster Securities, a U.S. 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.

By 2012, according to Mobius of Templeton, prices may reach $78, surpassing the record $63.10-a-ton spot price on June 25, 2004, when shortages prompted China to restrict exports.

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.

“China and India are both very active in looking for coal here, and people are getting greedy,” Jeffrey Mulyono, head of the coal mining association in Indonesia, said during a recent interview.

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, a commissioner at Bumi Resources in Jakarta, the largest Indonesian coal exporter. China will raise consumption by at least 200 million tons, he said.

“That creates a gap in the supply position, as demand is very large but supply is not very encouraging,” Rathod said this month. Prices will “spike when people can’t fill the gaps.”

Leony Aurora reported from Jakarta.

source news : iht.com

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