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China to Import More Russian Coal, Lend $6 Billion

China became a net coal  importer for the first time in 2009 after overseas deliveries more than tripled to a record 125.8 million tons from a year earlier. Photographer: Qilai Shen/Bloomberg
China became a net coal importer for the first time in 2009 after overseas deliveries more than tripled to a record 125.8 million tons from a year earlier. Photographer: Qilai Shen/Bloomberg

Sept. 7 (Bloomberg) -- China, the world’s biggest coal consumer, agreed to increase imports of the commodity from Russia by two-thirds in return for a $6 billion loan.

Russia will raise shipments to China to at least 15 million metric tons annually in the next five years and more than 20 million tons in the following 20 years, according to a Russian Energy Ministry statement. Deliveries surged 15-fold to 11.8 million tons last year, accounting for about 10 percent of China’s total imports.

Russia will use the loan to finance investments by domestic coal producers in return for a guarantee to increase supplies to China, Russian Energy Ministry spokeswoman Irina Yesipova said today by telephone. China, which uses coal to make steel and to fuel 80 percent of its power plants, is seeking to boost imports from countries including Mongolia and Australia to meet demand.

“It is strategically important for China to boost coal imports from neighboring counties including Russia to secure energy supply,” Wu Jie, a coal analyst at Orient Securities Ltd., said by telephone from Shanghai. “The purchase won’t have too big an impact on the domestic market and prices, given the moderate increase.”

Russia Vs. Australia

China became a net coal importer for the first time in 2009 after overseas deliveries more than tripled to a record 125.8 million tons from a year earlier. Its coal purchases from Russia cost an average of $87 a ton last year, compared with $111 a ton for cargoes from Australia, according to customs data. Russia was the fourth-largest supplier after Australia, Indonesia and Vietnam, the data show.

Russia and China signed the coal-supply and loan agreements at the end of August, according to the Russian statement. The $6 billion loan will help Russia fund new mining equipment, develop resources in the nation’s Far East and build coal-transportation links including railways, the China Coal Transportation and Distribution Association said today in a report on its website.

The countries will also set up joint ventures to develop coal resources in Russia and conduct research into coal-to-liquids technology, according to the Chinese report. Russia will cooperate on exploration with Shenhua Group Corp., China’s largest coal company, the association said, without elaborating.

Drive the Industry

“This agreement is beneficial for all coal producers in Russia,” said Alexander Pukhaev, an analyst at VTB Capital in Moscow. “It could act as a key factor driving forward the development of this sector.”

OAO Mechel, Russia’s biggest producer of coal for steelmaking, may benefit from the Chinese loan because it needs funds for its Elga mining project in eastern Siberia, Pukhaev said. Steelmakers OAO Severstal, Evraz Group SA and OAO Novolipetsk Steel might also be interested as they seek to develop coking-coal deposits in Siberia’s Tyva region, he said.

OAO Siberian Coal Energy Co., Russia’s largest coal producer, said last September that it increased exports to China 10-fold in the first nine months of 2009.

Electricity demand in China grew 22 percent in the first half from a year earlier as economic growth rebounded to 10.3 percent in the second quarter and 11.9 percent in the first.

To contact the reporter on this story: Winnie Zhu in Shanghai at wzhu4@bloomberg.net

To contact the editor responsible for this story: Clyde Russell at crussell7@bloomberg.net

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