Coal Demand Hurt in China by Low Power Rates, Credit Suisse Says

Demand for coal in China and India may be “stifled” as electricity producers in those nations pay relatively high rates to import the fuel to make power and earn low prices, according to Credit Suisse Group AG.

China’s National Development and Reform Commission raised on-grid prices twice this year, amounting to less than 0.04 yuan a kilowatt-hour (0.6 U.S. cent), compared with Qinhuangdao coal prices, which have almost doubled 2009’s averages, said Ric Deverell, a London-based analyst for Credit Suisse.

“For seaborne suppliers, failure of India and China to address problems associated with pricing anomalies could hold back import growth -- a case of killing the goose that lays the golden egg,” Deverell said yesterday in a note to investors. “High prices could also hold back demand as electricity producers operate at a loss.”

China and India may import 213 million metric tons this year, or 32 percent of total seaborne thermal coal supply, according to the note e-mailed to Bloomberg.

China Electricity Council estimated losses in the first seven months of this year at more than $1.2 billion for the major five generating entities, according to the note. Power plants in India earn 10 percent to 15 percent in returns when imported coal accounts for 15 percent of needs. Domestic coal shortages force plants to import more or trim utilization as they can secure only half of their requirements locally.

“Coal price growth has outpaced state set electricity tariffs,” Deverell said. “Electricity output is falling back on coal generation’s slow down.”

To contact the reporter on this story: Dinakar Sethuraman in Singapore at dinakar@bloomberg.net

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

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