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Thermal Coal’s 30% Gain to Outpace Oil, Gas on Japan Quake: Energy Markets

Thermal coal may outpace oil and gas this year, rising more than 30 percent to a record, as demand from China and India accelerates and Japan boosts imports to make up for nuclear power lost after the March earthquake.

Prices at the Australian port of Newcastle, a benchmark for Asia, may average $130 a metric ton in 2011, the median forecast of seven analysts surveyed by Bloomberg shows. That compares with $99 a ton last year, according to data compiled by Bloomberg and IHS McCloskey, a Petersfield, England-based researcher. New York crude futures are forecast to rise 26 percent next year, while U.S. natural gas will be unchanged.

Demand for coal is increasing in China and India as the countries look to fuel economies that are outpacing the rest of the world. China’s purchases may rise by 7.8 percent in 2011, while India’s may climb 28 percent, Societe Generale SA said last month. Japan may consume as much as 1 million extra tons this year as the country turns to coal-fired plants make up for the loss of nuclear generation, according to Deutsche Bank AG.

“The demand story for thermal coal is going to look quite strong,” said Mark Pervan, head of commodity research at Australia & New Zealand Banking Group Ltd. in Melbourne, who estimated contract prices for the 12 months starting April 1 would reach $130 a ton. “This year we’re going to see quite an accelerated increase in demand from India. China will again be a strong contributor.”

Thermal coal will average $132 a ton this year and $145 in 2012 as demand from Japanese utilities for fuel with high-energy content rises, Daniel Brebner, an analyst for Deutsche Bank in London, said in an April 8 report. Price estimates ranged from $118 to $150 a ton in the survey.

Contract Prices

Benchmark West Texas Intermediate crude futures may average $100.14 a barrel in 2011 from $79.61 last year, according to the average forecast of 37 analysts surveyed by Bloomberg, with the most recent predictions given the heaviest weightings. Crude rose 0.8 percent to $112.29 a barrel today on the New York Mercantile Exchange.

Natural gas futures for delivery next month to Louisiana’s Henry Hub, the U.S. benchmark, will be unchanged at $4.38 per million British thermal units, according to 25 estimates. The price rose 2.4 percent today to $4.412 in New York.

Thermal coal at Newcastle dropped 40 cents to $122.80 a ton in the week ended April 15, according to IHS McCloskey data. The fuel averaged $128 a ton in 2008, the highest-ever annual cost. Buyers have already agreed to pay record prices for yearly supply contracts, which can be used as an indicator for the direction of spot prices.

Chugoku Electric Power Co. agreed to pay $129.85 a ton under a term contract from Xstrata Plc (XTA), the world’s biggest exporter of coal for power stations, compared with $98 a ton last year, Deutsche Bank said in its report.

Japan’s Power

Jakarta-based PT Bumi Resources, Asia’s biggest exporter of power-station coal, forecasts prices may rise to between $140 and $150 a ton by December because of increased demand from China, India and Japan, Kenneth Farrell, a company director, said in Singapore this month.

Japan, the world’s biggest importer of coal, is seeking alternatives to nuclear generation after the record 9.0- magnitude earthquake and subsequent tsunami shut 11 reactors. The country imported 115 million tons of thermal coal last year and purchases may rise to 118 million next year when almost 9 gigawatts of coal capacity is brought back on line following damaged by the temblor, Societe Generale said. The Paris-based bank estimated Newcastle prices will average $128 this year.

“Despite the near-term challenges for coal-fired power producers in Japan, domestic utilities are anxious to secure volumes to ensure supply as power consumption resumes,” Deutsche Bank’s Brebner said.

95% Capacity

Japanese utilities can use an extra 5 million to 10 million tons of coal by running plants at 95 percent of capacity, Pervan said in an interview last month.

Immediate demand for the fuel from Japan may still decline in the next six to 12 months as the effects of the March 11 disaster reduce the requirements of some customers, Coal & Allied said in its first-quarter production report April 13.

Prices may fall to $105 a ton next year from $127 this year because the market is well supplied, Jodi Morgan, an analyst at Sanford C. Bernstein Ltd. in London, said in an e-mail.

“I see coal prices getting softer in another three to six months, as the market is going to have excess coal to the tune of 12 million tons because of the Japan incident,” Vinay Prakash, chief executive officer for coal and carbon credits at Adani Enterprises Ltd., India’s biggest importer of the fuel, said in an e-mail. “We see Chinese imports slowing down and their export figures increasing on a month-to-month basis, which makes the current market more bearish and we may see a correction in the current market price.”

China’s Production

Seaborne-coal demand is projected to exceed 1 billion tons in 2011, with the Asia Pacific region “comprising the vast majority” of growth, Peabody Energy Corp. (BTU), the largest U.S. coal producer, said Feb. 25.

“China has no signs of slowing,” said Helen Lau, Hong Kong-based analyst with UOB-Kay Hian Ltd. “The demand outlook this year, we think, should remain strong,” she said, citing an increase from Japan because of nuclear plant closures.

India increased imports of thermal coal by 17 percent to 47 million tons last year and shipments may rise to 60 million tons in 2011, according to Societe Generale.

China will remain a growing import market for thermal coal in the next decade as domestic mine production lags behind power demand, said Paworamon Suvarnatemee, a Bangkok-based analyst at Credit Suisse Group AG. The country’s 2012 imports of the power- plant variety may rise to 70 million tons, Societe Generale said.

Indian Demand

Contract prices for the fuel in the year starting April 1, 2012, may rise to $135 a metric ton, “with India’s additional demand and China again showing that it’s a big net importer,” said Pervan, who estimates annual prices in 2013 may increase to $140 a ton. Demand will rise 5 percent this year and 8.5 percent in 2012, driven by a jump in Indian consumption.

Global thermal-coal trade is projected to increase 4 percent a year to 962 million tons in 2016, underpinned by demand from China and India, the Australian Bureau of Agricultural and Resource Economics and Sciences said in a report last month.

“We expect strong demand growth in China and India will continue throughout 2011 and the long-term prospects are also bright,” Chris Renwick, chairman of Rio Tinto Group’s Coal & Allied Industries Ltd. (CNA) unit, told the company’s annual general meeting April 15. “Our traditional Asian markets have returned to pre-global financial crisis demand levels.”

To contact the reporters on this story: Dinakar Sethuraman in Singapore at dinakar@bloomberg.net; Ben Sharples in Melbourne at bsharples@bloomberg.net

To contact the editor responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net

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