China to Boost Coal-Rail Capacity After Delays, Bernstein Says

China will add 18 percent more coal- transporting rail capacity this year than initially forecast, piling downward pressure on the price of the fuel, according to Sanford C. Bernstein & Co.

The world’s top producer and consumer of coal will commission 2,950 kilometers (1,833 miles) of such rail lines after startup delays in 2012, caused by funding pullback following a fatal high-speed train crash in 2011, Bernstein said in an e-mailed note today. The broker had forecast 2,498 kilometers, according to the report.

Benchmark spot prices in China fell 20 percent last year as an economic slowdown damped demand for the power-station fuel, according to data from China Coal Transport and Distribution Association. Costs will decline 7 percent this year and continue to slide through 2015, Bernstein said in a report Jan. 14

“As delayed projects are commissioned in 2013, paths to market will expand and pressure on coal price will persist,” Michael Parker, a Hong Kong-based analyst at Bernstein, said in the report. “Rail capacity growth is a core aspect of our bearishness on the Chinese coal sector.”

The next track to be commissioned is a 98-kilometer link from north Chongqing to Fuling, expected to start operations in June, Bernstein said. Another 8,016 kilometers of railway will come online over the following 18 months, with new lines opening once every two to three months, it said.

Coal-dedicated lines commissioned last year totaled 179 kilometers, down 88 percent from 2011, according to Bernstein.

Seven major rail projects that link to ports in the northeastern Bohai Bay will be completed by 2015, with the Handan-Huanghua line to be finished this year, Bernstein said.

China’s power demand rose 5.5 percent to 4.96 trillion kilowatt-hours in 2012, after an 11.7 percent increase in 2011, the National Energy Administration said on Jan. 14.

To contact Bloomberg News staff for this story: Sarah Chen in Beijing at schen514@bloomberg.net

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

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