Energy

Imports regain appeal as thermal coal price soars

By Dinakar Sethuraman (China Daily)
Updated: 2011-05-06 09:51

The port in Qinhuangdao, Hebei province, which ships more than half of country's coal. Inventories at the port fell to 4.89 million tons, the lowest level in almost a year. [Photo/ China Daily]

SINGAPORE - China's highest power-station coal prices in more than two years may prompt a rebound in imports as Australian and Indonesian supplies become more attractive and inventories drop to "crisis" levels.

The cost of thermal coal at Qinhuangdao port, a Chinese benchmark price, was as much as 860 yuan ($132) a ton on May 2 after climbing 5.5 percent in April, according to the China Coal Transport and Distribution Association. That's the highest price since October 2008. Prices for coal leaving Newcastle, Australia, shrank 3.4 percent last month, narrowing the difference between domestically produced fuel and imports to the lowest since December, according to data compiled by Bloomberg.

Power shortages in China, which relies on coal for more than 70 percent of its electricity, may escalate this summer as fuel costs rise and the government caps utility prices, Goldman Sachs Group Inc said in a note on Wednesday. About 20 regions have started rationing power, Xinhua News Agency reported. Coal stockpiles at ports have dropped to an 11-month low, according to the China Coal Transport and Distribution Association, after imports shrank 26 percent in the first quarter.

Related readings:  China may levy resource tax of 10% on oil, gas  Thermal coal price rises set to continue  Power-coal prices hit the highest point  Domestic energy supplies addressed

"It has become profitable again to import," said Huang Teng, general manager at Beijing LT Consultant Ltd and a former coal trader at the State-owned China National Coal Group in an interview. "We will probably see an increase in imports reflected in official data for May."

China's overseas purchases fell 26 percent to 32 million tons in the first quarter after Australian prices rallied. Coal delivered to southern China from Newcastle cost as much as $171.20 on Jan 14, the highest in more than two years, according to data from CLSA Asia Pacific Markets in Hong Kong.

Australian deliveries to the southern port of Guangzhou cost about $158 a ton, or $10.10 more than domestic prices, according to Bloomberg calculations based on CLSA data. That's the smallest premium since Dec 17 and a drop of 72 percent from the $36.70 high that was set on Feb. 25. The last time domestic supplies were more expensive than imports was on Nov 26, according to CLSA data.

Indonesia, the world's largest exporter of thermal coal, also cut the price for sales of the fuel to Asia in April, the second monthly reduction, the energy ministry said on April 19.

"We expected imports would drop this year, now there's certainly a change as domestic prices are rising faster than international prices," said Helen Lau, a Hong Kong-based analyst for UOB Kay Hian Ltd, on Thursday.

Inventories at Qinhuangdao, which ships more than half of China's coal, fell to 4.89 million tons, the lowest level in almost a year, the China Coal Transport and Distribution Association said May 3. At the end of last month, power plants had inventories equivalent to nine days consumption compared with the normal two weeks, an "alarming low", Lau said in a report on Tuesday.

Bloomberg News