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China Gridlock Pushes Coal to Four-Month High: Energy Markets

China Gridlock Pushes Coal to Four-Month High
China is driving up world coal prices as clogged roads and railways from Beijing to Tibet restrict deliveries in the world’s fastest-growing major economy while the country tries to build stockpiles ahead of winter. Photographer: Doug Kanter/Bloomberg

China is driving up world coal prices as clogged roads and railways from Beijing to Tibet restrict deliveries in the world’s fastest-growing major economy while the country tries to build stockpiles ahead of winter.

A jam held up traffic for as many as 10 days along the country’s main east-west highway in August, underscoring a crisis that may buoy prices for the next two years, according to Daniel Brebner, an analyst at Deutsche Bank AG in London. The China Coal Transport and Distribution Association says it may take up to four years to ease the gridlock.

Government incentives and lower wages away from coastal regions are boosting Chinese inland development, creating transport disruption that is hampering access to domestic supplies and prompting coal consumers to turn to foreign imports. Power-station coal at the Australian port of Newcastle and South Africa’s Richards Bay climbed to four-month highs last week, according to data compiled by IHS McCloskey, a Petersfield, U.K.-based researcher.

“Rising domestic prices could prompt a pick-up in demand for cheaper imports, potentially buoying the Asia-Pacific market,” said Marcus Pearl, associate director for commodity sales at Australia & New Zealand Banking Corp. in Singapore.

Chinese power stations are trying to increase inventories in preparation for the colder months, with stockpiles at the nation’s largest grid operators rising 6.6 percent in the month to Oct. 10, according to data from the China Coal Transport and Distribution Association. China, whose economy surpassed Japan’s as the world’s second-biggest from April to June, boosted imports by 42 percent to 122 million tons in the nine months through September, according to customs data.

Cheaper Imports

Benchmark prices at the port of Qinhuangdao rose to $115.93 a metric ton, a three-month high, IHS McCloskey data show. That’s about 25 percent higher than coal at Richards Bay and in Indonesia, China’s biggest supplier, 17 percent more than Newcastle’s and 38 percent higher than Colombia’s.

Imports will be supported by rising electricity demand as winter approaches, according to New York-based Commodore Research & Consultancy. Northwest China will have snow and southwest areas rain until Oct. 28, the China Meteorological Administration said on its website this week.

The Bohai-Rim Steam-Coal Price Index, or BSPI, climbed 2 percent to 750 yuan ($112) a ton today from a week earlier, according to the Qinhuangdao Seaborne Coal Market website. The weekly gauge tracks power-station coal prices at six major Chinese ports.

Indian Demand

“We expect coal prices to increase because of demand from China, Japan and Korea, and of course India will be importing in a big way,” said T.K. Chatterjee, head of fuel sourcing in New Delhi at NTPC Ltd., India’s biggest power producer. India’s thermal coal imports surged 16 percent in the year ended March as electricity demand jumped, according to Coal India, the state-owned mining company.

Coal at Newcastle rose 1 percent to $98.80 a metric ton last week, the highest level since June 18, according to IHS McCloskey. Prices at South Africa’s Richards Bay, the world’s second-biggest export harbor for the fuel, climbed 4.4 percent to $92.97, also the highest since June and the biggest gain in five months, the data showed.

Thermal coal prices will average $110 a ton next year and $120 in 2012, Deutsche Bank’s Brebner said on Oct. 7. Coal use in Asia climbed 6.4 percent last year, more than a 0.8 percent increase in oil consumption, according to BP Plc.

Rains, Railways

Flooded mines in Indonesia and Colombia and are also disrupting output, while South Africa’s export growth has been hampered by a lack of rail capacity.

The fuel in Indonesia, the world’s biggest thermal coal exporter, climbed to $92.68 a ton on Oct. 11, according to monthly reference prices released by the Directorate General of Coal, Minerals and Geothermal at the country’s Energy Ministry. It was the first gain in four months.

Exports from Richards Bay may be “limited” for the next two years because of inadequate railroad capacity, DnB NOR ASA said in a report on Aug. 12.

Xstrata Plc, the world’s largest exporter of thermal coal, said third-quarter output fell 5 percent due to mine closures in South Africa and rain in Colombia.

Lower-than-targeted production in Indonesia this year because of rain, coupled with rising Indian demand, may drive coal to $102 a ton by year-end, Bob Kamandanu, the chairman of the Indonesian Coal Mining Association, said on Oct. 14. Prices may average between $90 and $100 a ton next year, he said.

“Given the strength in demand, and supply disruptions already evident in the market, prices can find further support,” said Amrita Sen, an analyst at Barclays Plc in London.

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