China Coal Price May Rise 5% as Imports Increase 15%, UOB Says

Dec 1, 2011 -- Coal prices in China may rise 5 percent in 2012 and 2013 and imports may increase 15 percent a year because of supply tightness, “strong” industrial demand and reliance on thermal power, according to UOB-Kay Hian Ltd.

Imports of coal for power stations and steelmakers may climb to 300 million metric tons in 2015 from an estimated 165 million this year, said Helen Lau, a Hong Kong-based analyst at UOB-Kay Hian, in a report e-mailed today. China’s thermal power generation rose more than 15 percent in the first 10 months of this year, outpacing a 12 percent increase in electricity consumption and countering an 8 percent decline in hydropower output, she said.

"Barring possible short-term weakness in 4Q11 and 1Q12, strong demand and supply tightness should continue to support coal price uptrend in 2012,” Lau said in the report.

China, the world’s biggest user and producer of coal, will cap spot prices of the power-station fuel and limit increases in contract prices next year, the National Development and Reform Commission, the nation’s top economic planner, said yesterday. The NDRC also increased electricity tariffs for the first time in six months, effective today. Thermal power generation accounted for about 82 percent of China’s electricity output this year, according to Lau.

Total coal imports in 2011 will be similar to last year’s level at about 165 million tons, Lau said. Demand in the first quarter of 2012 “should remain resilient” because of the widening gap between domestic and international prices, she said.

Coal Prices

Benchmark prices of coal with a heating value of 5,500 kilocalories per kilogram at Qinhuangdao, China’s largest port for the fuel, rose to as much as 860 yuan ($135) a ton on Oct. 23, the highest level since 2008, as utilities built up stocks to meet winter demand, according to the China Coal Transport and Distribution Association. The price was at 840 yuan to 850 yuan on Nov. 27.

Coal with a heating value of 6,700 kilocalories per kilogram at Australia’s Newcastle port, an Asian benchmark grade, were at $110.85 a ton on Nov. 25.

China’s imports of thermal and coking coal fell 18 percent in October from a month earlier to 15.7 million tons, according to customs data.