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Bloomberg : Coal Two-Year High May Spur China Import Rebound: Energy Markets

Date: Thu, 5 May 2011

Power shortages in China, which relies on coal for more
than 70 percent of its electricity, may escalate this summer as
fuel costs rise and the government caps utility prices, Goldman
Sachs Group Inc. said in a note yesterday. About 20 regions have
started rationing power, Xinhua News Agency reported. Coal
stockpiles at ports have dropped to an 11-month low, according
to the China Coal Transport and Distribution Association, after
imports shrank 26 percent in the first quarter.
     “It has become profitable again to import,” Huang Teng,
general manager at Beijing LT Consultant Ltd. and a former coal
trader at state-owned China National Coal Group, said in a
telephone interview. “We will probably see an increase in
imports reflected in official data for May.”

                          Import Prices

     China’s overseas purchases fell 26 percent to 32 million
tons in the first quarter after Australian prices rallied. Coal
delivered to southern China from Newcastle cost as much as
$171.20 on Jan. 14, the highest in more than two years,
according to data from CLSA Asia Pacific Markets in Hong Kong.
     Australian deliveries to the southern port of Guangzhou
cost about $158 a ton, or $10.10 more than domestic prices,
according to Bloomberg calculations based on CLSA data. That’s
the smallest premium since Dec. 17 and a drop of 72 percent from
the $36.70 high that was set on Feb. 25. The last time domestic
supplies were more expensive than imports was on Nov. 26,
according to CLSA data.
     Indonesia, the world’s largest exporter of thermal coal,
also cut the price for sales of the fuel to Asia in April, the
second monthly reduction, the energy ministry said April 19.
     “We expected imports would drop this year, now there’s
certainly a change as domestic prices are rising faster than
international prices,” Helen Lau, a Hong Kong-based analyst for
UOB Kay Hian Ltd., said today. “Power stations now say it’s
profitable to import.” China may buy more in the second quarter
than in the first, she said.

                         ‘Alarming Low’

     Inventories at Qinhuangdao, which ships more than half of
China’s coal, fell to 4.89 million tons, the lowest level in
almost a year, the China Coal Transport and Distribution
Association said May 3.
     “Stockpiles at some power plants have reached crisis
levels,” David Fang, a director at the association, said by
telephone from Beijing. “We thought demand would be stable in
the first quarter but it turned out far too strong.”
     Power plants had inventories at the end of last month
equivalent to nine days consumption compared with the normal two
weeks, an “alarming low,” Lau said in a report on May 3.
     “The continuously rising domestic coal price in the last
six weeks in China testifies the revived dynamism of Chinese
coal demand,” Emmanuel Fages, a Paris-based analyst for Societe
Generale SA, said in an April 29 report. “Inventories at plants
are reaching low levels ahead of summer.”

                         Power Shortages

     China, the world’s biggest energy user, may face shortages
of 30 gigawatts during the country’s summer as supply lags
behind demand, the China Electricity Council said April 29.
Power demand rose 13 percent to 1.09 trillion kilowatt-hours in
the first quarter, the council said. Consumption may increase 12
percent to 4.7 trillion kilowatt-hours this year, while
generation capacity may gain 9 percent, it said.
     A 25 percent surge in benchmark coal costs last year and a
freeze in power prices since November 2009 left almost a fifth
of state-run coal-fired power plants facing bankruptcy, China
Power International Development Ltd. said April 1.
     “The new topic in the market has become blackouts in
summer as some industries are seemingly reducing their output to
combat limited supply, and some local authorities have ordered
output restrictions already,” Fages said.
     Coal production is lagging behind demand because of
bottlenecks in transporting the fuel from producer regions in
the north-east to consumers on the coast, UOB Kay Hian’s Lau
said. Maintenance on the Daqin Railway, used for transporting
the fuel from Datong to Qinhuangdao, caused halts of about 4
hours a day and resulted in destocking at major Chinese coal
ports, New York-based Commodore Research said April 26.
     Demand growth may slow in the longer term as the country
seeks to cap energy use, Neil Beveridge, a Hong Kong-based
analyst at Sanford C. Bernstein & Co., said in a report on April
28. Consumption may increase as little as 2 percent annually in
the next five years, compared with growth exceeding 6 percent in
the preceding five years, he said.
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