Posted by: mel | June 1, 2009

Asian coal producers eye Chinese demand outlook

Look at Vietnam | 31 May 2009 | Source: Reuters

China’€™s appetite for coal imports, which has helped prop up Asian coal prices at above US$60 a ton for much of this year, has been a rare bright spot in a region where demand has been pulverized by the economic downturn.

Some analysts say China’€™s voracious appetite for overseas coal is likely to continue, and could even increase, as Beijing’€™s determination to shut down small and unsafe mines persists at a time when its economy is still forecast to grow, albeit at a slower pace, at about 7 percent.

The sustainability of China’s coal demand will come into focus at the Coaltrans Asia conference in Bali next week, along with Indonesia’€™s plans to keep more of its coal production for domestic use.

“€œThere were concerns that Chinese demand would fade once local utilities reach a price agreement with miners, but considering the amount of coal that would be removed due to the closing of small mines, it would appear that Chinese demand could stay robust in the months to come,”€ said Tom Price, a Sydney-based commodities analyst at Bank of America.

“€œThat’€™ll be great news to regional producers.”

Renewed Chinese buying has helped to protect the bottom-line of producers in Indonesia, Vietnam and Australia, as demand from Japan – Asia’€™s No.1 coal buyer – slumped amid a recession.

Coal imports from China, the world’€™s top coal producer and until recent years a sizeable exporter, surged to a record high of 9.16 million tons in April, up 3.4 million tons from a month earlier and far above market expectations.

With exports of a mere 1.96 million tons, China was a net importer of 7.2 million tons of coal last month, more than its total net exports for the whole of 2008 and prompting speculation that it may become an overall net importer this year.

“€œChina’€™s demand is unlikely to fade because its economy is gradually recovering, so I think the uptrend in coal prices is sustainable,” Priyadi, general manager for operations at PT Adaro Energy told Reuters. “€œMoreover, oil prices are also on the rise.”€

Australian thermal coal prices, a benchmark for Asia, rose to a fresh three-month high of $66.31 a ton this week, tracking gains in crude oil prices and supported by steady Chinese demand.

Indonesian policies

Moves by Indonesia to secure its domestic fuel needs will also be of concern to producers, such as Bumi Resources and Adaro.

Trade sources said uncertainties over pricing and supplies have also led some major buyers, such as Korea South East Power Co Ltd and Japan’s J-Power, to lean towards Australian supplies, benefitting miners such as Xstrata Coal and Rio Tinto Ltd/Plc.

The Indonesian government said this year it would pass a law requiring all producers to allocate part of their output for the domestic market and has also proposed that miners pay their royalties using coal instead of currency.

“Buyers and producers have a lot of question marks about the government’€™s thinking,”€ said a Singapore-based coal trader.

“It’€™s still not clear what types of coal will be affected by the domestic supply obligation rule and that will have an impact on future supply.”

Indonesia, the world’€™s top thermal coal exporter, is expected to produce about 240 million tons of coal this year, up slightly from 238 million tons last year, but down on a forecast of 265 million tons early this year, the Indonesia Coal Association says.

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