More than 'China factor' behind coal spike
February 8, 2010 - Cold weather and the approach of the Lunar New Year saw international seaborne coal prices spike in early January 2010.
The 'China factor' is a major contributor, but not the only cause. Exports from key producers are constrained, demand widespread, while India, China and Russia are suffering internal transport problems. (See related chart: Coal export volumes (millions mt), 2006-2009).
Data from key port authorities show an enormous swing towards Asian markets for major coal exporters.
International coal prices saw a massive spike in early January, with prices reaching close to $100/mt FOB Newcastle for Australian cargoes as cold weather gripped the northern hemisphere. (See related chart: Newcastle FOB daily coal price (USD/mt), 2006-2009).
The primary factor has been Chinese buying, but the price rise reflects more than just the 'China factor'.
from other coal exporters, such as Indonesia and South Africa, are proving inflexible, while demand is being driven by transportation bottlenecks within both China and India.
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Demand from other Asian buyers has also risen, while supply from Russia has been disrupted by bad weather.
Chinese thermal coal importers were expected to increase purchases during January in preparation for the Lunar New Year, the nation's biggest annual holiday which begins on February 14.
However, some coastal power plants in China have reported difficulties procuring domestic coal and have seen their stockpiles shrink.
According to Japanese traders, some coal plants have been idled, owing to a lack of domestic deliveries, causing plant operators to turn to imported coal.
The total delivery cost of Newcastle coal to a Chinese importer in early January was about $138/mt.
The cost includes freight of about $22/mt, a 17% import tax on the FOB cost, amounting to $15.30/mt, a 7% tax on freight of $1.54/mt, Chinese port and stevedoring charges of about $6/mt and trader's margin of about $3/mt.
The cost of buying and transporting domestic coal was put at $140/mt. The spot Chinese domestic price was about Yuan 820/mt or $120/mt, industry sources said.
Transportation cost is estimated at $17/mt, while terminal and stevedoring charges are about $3/mt.
In addition to the build up to the Lunar New Year, cold weather has provided a boost to power and coal consumption for heating, while heavy snow has hampered internal transport.
And despite slower economic growth in 2009, power demand in China has proved resilient.
In November, electricity consumption surged by 27.63% year-on-year to reach 328.4 TWh, according to figures from the National Development and Reform Commission.
The rebound was driven mainly by industrial sector demand, which recorded a 31.69% year-on-year rise to 251.7 TWh.
Residential demand, while small in comparison to industrial usage at 37.2 TWh, was up 15.93% year-on-year in November.
Commercial and other services demand rose by 16.09% to 32.1 TWh.
The November surge meant that Chinese electricity consumption in the first eleven months of 2009 was up 4.77% year-on-year at 3,299.1 TWh, while for much of the year demand had been lower than in the same period of 2008.
China's total installed generating capacity was set to reach 860 GW by end-2009, ranking the country second after the United States, according to comments made by energy bureau chief Zhang Guobao on December 25 and reported by the official Xinhua news agency.
Although the amount of nuclear, natural gas and renewable capacity is growing, the country continues to build new coal plant on a large scale, and coal remains by far the most significant source of fuel for electricity production.
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