From Bloomberg:
China’s Coal at Discount, Signaling Import Drop: Energy Markets
2010-05-07 02:03:07.839 GMT
By Bloomberg News
May 7 (Bloomberg) — Coal prices in China are their cheapest in 20 months against the benchmark Australian grades, signaling shipments to the world’s second-largest energy user are poised to fall.
Power-station coal from Qinhuangdao, China’s largest port for the commodity, sells for $23.30 a metric ton less than coal delivered from Newcastle, Australia, the widest gap since September 2008, according to CLSA Asia-Pacific Markets. Prices of supplies from Newcastle reached a 19-month high of $152.90 a ton on April 30.
The price discount “suggests a slowdown in Chinese coal imports” this quarter, Andrew Driscoll, head of resources research at CLSA Asia-Pacific Markets, said by telephone from Hong Kong. “Last year was an exceptional year. In the first half, competing demand for coal in the seaborne market was low and prices at a premium in China provided an incentive for more imports.”
China, the world’s biggest user and miner of coal, boosted purchases from overseas and stepped up domestic production as economic growth of 11.9 percent in the first quarter led to a surge in power demand. The nation’s output reached a record 289 million tons in November, up from 227 million tons a year ago, the National Bureau of Statistics said.
Production climbed to 280 million tons in March, 12 percent more than the 2009 monthly average, according to the bureau’s most recent data.
Qinhuangdao’s coal cost $129.60 a ton upon delivery to southern China, the nation’s manufacturing hub.
Buying Less
European benchmark coal futures for May delivery at Rotterdam have risen 48 percent in the past year to yesterday’s $91.10 a ton. Prices for the June contract on the New York Mercantile Exchanged reached this year’s high of $64.22 on May 4.
Prices have gained about 28 percent this year.
China planned to cut imports as of last month as the cost of overseas supplies climbed and domestic output rose, the government said on April 23.
Imports from Australia fell 67 percent to 767,268 tons in February from a record 2.32 million tons in June 2009, according to data compiled by the Australian Department of Foreign Affairs and Trade. Average monthly imports in 2008 were 190,239 tons.
China increased purchases last year to take advantage of lower prices as the global recession sapped demand for commodities worldwide and cut shipping charges. The average Baltic Dry Index, a global benchmark for dry-bulk freight rates, had fallen 59 percent in 2009 from a year earlier.
“We should see a decrease in purchases by traders and utilities because there aren’t opportunities to buy cheap seaborne supplies anymore,” Driscoll said.
Sufficient Supplies
Qinhuangdao thermal coal became cheaper than Newcastle grades in February, after being priced higher for more than half of last year, according to CLSA.
China’s domestic supplies in the second half may climb when restructured and merged mines in the northern province of Shanxi, one the country’s two biggest coal-producing regions, resume output, the National Energy Administration said last month.
“China has enough thermal coal, especially when the mine consolidations are over,” said David Fang, a Beijing-based director at the China Coal Transport and Distribution Association.
The country, which has the world’s worst record in coal mine fatalities, shut 1,000 pits last year to improve safety.
The government ordered small mines to merge and form better- managed ones with increased mechanization and better safety conditions.
About seven people died daily from coal mine accidents in China last year compared with 18 deaths for the entire year in the U.S., the No. 2 producer.
Demand Pick-Up
A six-month long drought in China’s southwest caused an increase in coal demand after hydropower plants’ output declined.
The proportion of coal shipped to China from Newcastle rose
22 percent in April from March when prices at the Australian port climbed to the highest in 18 months, according to Port Waratah Coal Services, operator of two terminals at the harbor.
China became a net coal importer for the first time in 2009 after buying 125.8 million tons of the fuel when global prices were lower than the cost of domestic grades.
“We won’t see a repeat of opportunistic buying by China,”
said Paul Manley, a Beijing-based consultant at Wood Mackenzie.
“We do not expect import levels to reach that of 2009.”
–Chua Baizhen with assistance from Ben Sharples in Melbourne.
Editors: Ang Bee Lin, Jane Lee.