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Power-station coal in Asia is poised to rebound in 2013 from the steepest annual decline in seven years as utilities in China and the U.S. burn more of the fuel to feed their growing economies.
Thermal coal at the Australian port of Newcastle may average $98 a metric ton next year, according to the median estimate of seven analysts in a Bloomberg News survey this month. Prices have slipped 19 percent to $90.30 a ton this year, the biggest drop since 2005, even after rallying 10 percent last month, data from IHS McCloskey show. China’s imports of thermal and steelmaking coal climbed to a record in November, the China Coal Transport & Distribution Association said Dec. 18.
The rebound underscores the fuel’s dominance even as governments encourage the use of cleaner-burning natural gas. China, which burns coal for about three-quarters of its electricity output, will boost power consumption 6.5 percent in 2013, the Chinese-language 21st Century Business Herald reported Dec. 6, citing an unidentified official at the National Energy Administration in Beijing. Deutsche Bank AG said this month more U.S. utilities will switch to coal as gas prices rise.
“China has been the story in terms of demand, and how it moves forward will be a big part of how 2013 plays out,” said Daniel Hynes, the head of commodity strategy at CIMB Securities Australia Ltd. in Sydney who forecasts Newcastle coal may average $103 a ton next year. “If we get Chinese imports remaining at current levels, it should be relatively positive. It’ll certainly tighten up the market pretty quickly.”
Coal at Newcastle with a heating value of 6,700 kilocalories a kilogram, the benchmark grade for Asia, has averaged $94.44 a ton this year, the IHS data show. The forecasts for 2013 ranged from $90 to $103 in the Bloomberg survey conducted Dec. 7 to Dec. 19.
A gain next year would extend the rally that started after prices dropped to a three-year low of $78.05 on Oct. 19. Coal rose in seven of the eight weeks through Dec. 14 and has advanced 7.2 percent since the end of September, setting it up for the biggest quarterly increase in two years.
Prices have risen amid colder weather in the northern hemisphere winter and signs China will snap a seven-quarter economic slowdown. The nation’s industrial production and retail sales in November increased at the fastest pace since March, government data showed Dec. 9. The economy will expand 8.1 percent in 2013, compared with 7.7 percent this year, according to the median estimate of 49 economists surveyed by Bloomberg Dec. 13 to Dec. 18.
China’s coal imports were a record 29 million tons in November, up 35 percent from October and 6.5 percent higher than a year earlier, the CCTD data showed. The nation’s overseas purchases of thermal coal next year may increase 5.3 percent to 179 million tons from a forecast 170 million tons in 2012, according to a Dec. 12 report from Australia’s Bureau of Resources and Energy Economics in Canberra.
Rising Chinese demand will still be outpaced by increased supplies and an excess in coal-transport capacity that will curb domestic prices and imports, according to Sanford C. Bernstein & Co. Coal at the port of Qinhuangdao, the benchmark grade for China, has fallen 23 percent this year to 625 yuan ($84) a ton, data from the CCTD show.
“The deflationary pressure of too much coal and too much rail is likely to grow stronger next year,” Michael Parker, a senior analyst at Bernstein in Hong Kong, said in a Dec. 14 report. “That isn’t bad news for Chinese coal miners, or for high-cost coal miners, or for small-scale coal miners or for coal miners with poor access to transport. That is bad news for all miners, everywhere.”
Stockpiles of coal at Chinese utilities were at 86 million tons as of Dec. 10, equivalent to 22 days of supply, according to data from the nation’s coal association. That compares with 20 days a year earlier, 16 in 2010 and 12 in 2009.
“We remain cautious on the Newcastle coal price outlook for 2013,” Helen Lau, an analyst at UOB Kay-Hian in Hong Kong who predicts the commodity will average $91 a ton in 2013, said in a Dec. 13 note. “Chinese coal-import demand will still be largely determined by domestic supply and demand balance.”
Asian prices may be supported by a decline in exports from North America as U.S. power utilities switch to using fuel from sites such as the Powder River Basin in Wyoming, which holds the nation’s largest coal reserves, instead of increasingly costly gas, according to Deutsche Bank.
Gas traded on the New York Mercantile Exchange has advanced 76 percent to $3.341 per million British thermal units since sliding to a 10-year low of $1.902 in April. Futures will average $3.75 in 2013, Deutsche Bank said in a Dec. 7 report.
“We estimate that gas prices have risen beyond the level where they can compete against Powder River Basin coal,” Michael Hsueh, an analyst at Deutsche Bank in London, wrote in the note. “A year-on-year increase in coal demand in Western states in 2013 should provide some degree of support for international prices to the extent that it reduces the need for seaborne exports from the U.S.”
U.S. exports will drop by about 20 percent to 40 million tons in 2013 as gas prices climb, Australia’s Bureau of Resources and Energy Economics said in its report. Cargoes probably rose by 34 percent to 50 million tons this year, the bureau said.
Australian shipments are projected to climb 13 percent to 180 million tons in the 12 months ending June 30, according to the bureau. Cargoes from Indonesia, the world’s biggest shipper of the power-station fuel, will be little changed at 252 million tons, from 250 million tons in 2012, the Jakarta-based Energy and Mineral Resources Ministry said in September.
“We are looking for coal prices to go to about $100 a ton,” said Daniel Morgan, a commodity analyst at UBS AG in Sydney. “That’s a reasonable lift and that will give coal producers some relief.”
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