China, Europe coal demand clash to boost price

Published on Fri, May 21, 2010 at 08:38

Coal could head back up to USD 100 a tonne later this year when a predicted further leap in China's demand hits winter buying from Europe head-on.
Last year China's 100 million tonnes of imports fully absorbed the tonnage unwanted by the rest of the world when demand in the West was decimated by the downturn.
This year Chinese demand is set to be even more rapacious at 170 million tonnes.

That could hike prices globally by USD 10 a tonne at least from current levels of USD 86.00-USD 92.00, analysts, producers and utilities said.
Worldwide annual thermal coal seaborne trade is around 650 million tonnes, split 200:450 million between Europea and Asia. The rise in China demand will tip the balance steeply.
"There has been an upward trend for months. Europe is re-importing and in Asia it is not just China -- South Korea's tenders are unabated, India is taking more and more from Richards Bay (South Africa)," said Emmanuel Fages, analyst with Paris-based Societe Generale.
"A rise of another USD 10 by Q4 is extremely likely, even before the end of June it is possible," Fages said.
Current price levels are exactly where a January Reuters poll had forecast average prices for 2010 as a whole in the absence of European demand.
Coal prices have already gained USD 10.00 during the past month on sentiment alone and are poised to spike when European buying resumes, utilities conceded.
Although utilities and analysts expect overall European coal demand to fall in 2010 from last year's levels, utilities said they will still need to buy fresh coal for the winter.
"As soon as Europe needs to source coal, there is the potential that API2 goes to a premium over API4," said Amrita Sen, commodities analyst with Barclays Capital.
"This year, price risk in general is to the upside, given the severity of the droughts in China and generally increasing appetite for India, which could push up prices, and in turn, the Europeans would have to pay a higher price," she said.
Coal is cheaper than gas for winter 2010 but these spreads could still change.
"If we all rush out to buy coal the spreads will shift and coal won't be in the money any more and we'll stop buying it but it does look like USD 85 right now is cheap," a major European utility source said.
"We're all going to need fresh coal despite the stocks in ARA and in the UK and the question is: where's it going to come from? Not South Africa, not Colombia, unless Europe competes and pays higher prices," a second large utility source said.
"It's going to be Russian or nothing and the big Russians are sold out or holding out for higher numbers," he added.

Europe's coal need will fall by 10-15 million tonnes this year from the usual steady 200 million tonnes due to lower power demand, cheaper gas earlier this year and Spain's halt to imports but European demand is no longer a primary price-driver.
Utilities, the primary consumers of thermal coal, were more bullish on coal price direction than traders or producers.

"Once the Europeans come out to do a bit of coal shopping, it won't take more than a little bit of buying to send prices sharply higher," the first utility source said.
"I don't see prices going anywhere near 2008's record of USD 200 a tonne but touching USD 100 for a while is certainly possible."

Source: http://www.moneycontrol.com/news/world-news/china-europe-coal-demand-clash-to-boost-price_459345-1.html