China could become net importer of thermal coal by 2008

For the first time in history, China could buy more coal than it exports in 2008, three years earlier than originally forecast.

JOHANNESBURG - 

Coal prices may surge 42% in five years as China could buy more than it exports in 2008 for the first time in history.

Mark Mobius of Templeton Asset Management told Bloomberg the coal sector in China has undergone change and a steep rise in coal prices would boost coal companies China Shenhua Energy Co., China Coal Energy and Yanzhou Coal Mining.

Mobius said prices might reach US$78/t by 2012, surpassing the record $63.10/t spot price of June 25, 2004, when China restricted coal exports due to shortages.

Deutsche Bank also said in a report the outlook for coal has improved significantly on the back of the prospect of China becoming a net importer of thermal coal as soon as 2008.

Rising prices for coal will drive global power costs higher, and benefit mining companies Xstrata, Rio Tinto and BHP Billiton, said Bloomberg.

Goldman Sachs forecast that higher coal prices would cause a 22 percent gain in the shares of Xstrata, the world's largest exporter of coal used in power plants. The stock may rise to 33.65 pounds (US$66.87) from 27.66 pounds as of last week, analysts of the securities firm said. 

Chinese coal imports exceeded exports by 1.4 million tonnes in January, the first time that happened, data from the General Administration of Customs in Beijing showed. The trend reversed in February, but the impetus for imports to rise was unstoppable, said Bloomberg.

According to the Chinese government demand may reach 2.6 billion tonnes in 2010, 270 million tonnes more than last year's production.

A Chinese turnaround to net coal purchases this year would come three years sooner than forecast by the Australian Bureau of Agricultural and Resource Economics.

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 $52 at the end of 2005, according to the McCloskey Group of coal consultants.

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.

But supply will not be strong enough to meet very large demand from Asian power generators, increasing coal orders by more than 300 million tonnes in the next three to four years, Bloomberg reported.

Power use in China, the world's biggest coal producer, is rising 13 percent annually, and utilities are building power plants at a record pace. The nation generates 78 percent of its electricity from coal and imports from Australia, Indonesia and Vietnam.

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