Coal at 28-Month High to Beat Oil, Gas on Floods


Thermal coal may climb about 14 percent to $150 a metric
ton in coming weeks, while increased stockpiles limit gains for
oil and natural gas, Joachim Azria, a New York-based analyst at
Credit Suisse Group AG, said in a Jan. 10 report. Helen Lau, a
Hong Kong-based analyst at UOB Kay Hian Ltd., said on Jan. 4
coal may advance as much as 15 percent. Prices at the Australian
port of Newcastle were at $131.80 a ton on Jan. 7, the highest
since September 2008, according to IHS McCloskey data.
     “There’s definitely more possible upside in the coal
market at the moment than there is in the oil market,” Ben
Westmore, an energy economist at National Australia Bank Ltd. in
Melbourne, said in a Jan. 12 interview.
     Spot prices at Newcastle, the world’s biggest coal-export
facility, have jumped 20 percent in less than six weeks,
according to Petersfield, England-based McCloskey. The worst
floods in Queensland state in 50 years shut mines and closed
transport lines, disrupting supplies. Coal shipped via South
Africa’s Richards Bay, Africa’s largest terminal for the fuel,
gained about 18 percent. Oil in New York rose 6.1 percent in the
same period, while natural gas added 5.1 percent.
     “Coal should continue to outperform oil and gas in 2011,”
said Azria, who estimates as much as 2 million tons of thermal
supplies have been disrupted by the Australian floods.

                        Asian Economies


     Australia & New Zealand Banking Group Ltd. increased its
spot thermal coal price forecast to $140 a ton, from $120 a ton,
for the three months to March 31, Mark Pervan, head of commodity
research in Melbourne, said in a note on Jan. 7.
     Demand for coal is growing faster than oil and gas as China
and India boost imports to feed economies that are outpacing the
rest of the world. China, which relies on the fuel for 70
percent of its energy, may increase overseas purchases by 30
percent this year, according to Lau, while imports to India may
double, India Coal Market Watch said. Coal will remain the
world’s most-used fuel for power generation through 2035, the
International Energy Agency said in November.
     Prices at Newcastle jumped 43 percent last year, while oil
futures in New York gained 15 percent. Natural gas dropped 21
     While coal is rising, the fuel is still more than 30
percent below the record set more than two years ago. Newcastle
coal traded at $192.50 a ton in July 2008 as floods hampered
supplies, according to McCloskey data on Bloomberg.

                          Disaster Zone

     An area bigger than Texas and California covering more
than 75 percent of Australia’s Queensland state has been
declared a disaster zone. Fifteen people are dead and 61 missing
after a flash flood smashed through Toowoomba on Jan. 10, taking
the total killed to 26 since the deluge started in November.
Brisbane, Australia’s third-largest city, was inundated with
muddy water, flooding 15,000 properties, smashing roads and
shuttering the city center.
     The flooding has cut coal output by about 4.5 million tons
since the start of December, about 3 million tons of which is
coking coal, used by steelmakers, and the rest thermal coal,
according to Colin Hamilton, a London-based analyst at Macquarie
Group Ltd. The state exports about 50 million tons of thermal
coal a year, according to Macquarie.
     “It was a perfect storm for coal, with cold weather in the
northern hemisphere boosting demand and excessive rainfall first
in Colombia, Indonesia and now in Australia creating vast
shortfalls in supply,” Amrita Sen, a London-based analyst for
Barclays Plc, said in an e-mail on Jan. 10.

                   World’s Biggest Supplier

     Indonesia, the world’s biggest supplier of thermal coal,
increased the reference price for the fuel by 8.7 percent in
January to $112.4 a ton, the Directorate General of Coal and
Minerals said on its website. Prices have climbed 25 percent
since September.
     Coal shipped through Richards Bay was disrupted last month
by derailments that depleted stockpiles at the terminal,
threatening to curtail first-quarter exports, port Chief
Executive Officer Raymond Chirwa said on Jan. 4. India bought
almost a third of Richards Bay’s exports last year.
     Prices at the port were at $126.39 a ton on Jan. 7, after
rising 60 percent last year.

                          Asian Driver

     “You have strong underlying fundamentals for coal,” said
Emmanuel Fages, a Paris-based analyst at Societe Generale SA.
“Bottlenecks remain on the supply side, so Asia is sucking up
resources even more from traditional suppliers of the West, like
Colombia or South Africa. You are bound see price increases over
the medium term.”
     China’s coal imports may rise to 210 million tons in 2011
from an estimated 166 million last year, according to Lau. The
country, which became a net importer of the fuel for the first
time in 2009, boosted overseas purchases by 35 percent through
November 2010, according to government data.
     While oil imports to China will continue to increase this
year, they may not match last year’s 17 percent pace, as growth
in refining capacity slows, Lawrence Eagles, a New York-based
analyst with JPMorgan Chase & Co., said in a Jan. 10 note.
     India may double imports of thermal coal to 104 million
tons in the year ending March 2012, according to Coal Minister
Sriprakash Jaiswal. That compares with 3 percent growth in oil
consumption, according to the Paris-based IEA.
     “Long-term fundamentals for coal are more robust than for
oil or gas, because the price increases are really driven by
speculative expectations at present for oil and gas,” Fages
said. If growth slows in China, it would take only about a month
for oil and gas “to come down to much lower levels,” he said.