Asia overtakes Europe as leading destination for South African coal

Increased demand from China fuels growth 

SOUTH Africa’s Richards Bay Coal Terminal is exporting more coal to Asia than to Europe for the first time as economic growth in China stokes demand, reports Bloomberg.

Producers increased shipments to Asia by 45% in the first seven months of the year and cut those to Europe by 41%, according to two of India’s three biggest coking-coal consumers.

“Europe didn’t really need the coal this year because of high stocks and low burn at UK and European power stations,” Julie Sharp, head of coal trading at Essen, Germany-based RWE AG, the nation’s second-largest utility, said.

“It took a little while for Asian buyers to respond.”

Asian appetite is soaring just as European demand falls amid a clampdown on greenhouse gases and concern government spending cuts and tax increases will hamper economic recovery in the UK.

Imports dropped 43% from January to May, according to government data. Shipments to Rotterdam, Europe’s largest coal harbour, declined 0.6% in the first half from a year earlier, Port of Rotterdam Authority said on its website.

Coal prices at Newcastle in Australia, the benchmark for Asia, averaged $96.94 per tonne this year through July, according to IHS McCloskey. The Richards Bay average is $87.85, McCloskey said.

The gap between the two grades has widened 58% to $9.09 per tonne in 2010 from $5.77 last year.

Asian purchases from Richards Bay were about 24m tonnes through the end of last month, five times more than Europe’s. Imports in July totalled 4.5m tonnes, almost as much as the 4.8m sent to Europe in the first seven months of 2010.

Demand in Asia is unlikely to diminish as the region’s economic growth outpaces the rest of the world, according to Brent Spalding, an analyst with Wood Mackenzie Research Consultancy in Brisbane, Australia.

China’s economy, which surpassed Japan’s as the world’s second-largest in the quarter ending June 30, will expand 10.5 % this year and 9.6 % in 2011, the International Monetary Fund said July 7.

India will increase 9.4% in 2010 and 8.4% next year, according to the IMF.

“The trend of South African coal moving to India and Asia will continue,” Spalding said. “They can get more from India for coal and demand is higher.”

Shipments to Asia were less than 10m tonnes a year between 2001 and 2007, while Europe’s exceeded 40m. In 2009, exports to Europe dropped to 28.1 m tonnes, representing 46% of total sales, from 38.9m a year earlier. For Asia, shipments more than doubled to 25.1m tonnes in 2009 from 11.1m in 2008, he said.

China burned 1.5bn tonnes of coal last year, three times more than the 498m tonnes consumed by the US according to BP’s Statistical Review of World Energy.

Coal consumption in China may increase 8% in 2010, according to Martin Wang, an analyst at Guotai Junan Securities in Hong Kong.

Demand jumped 14% in the first half after increasing 20% in 2009, according to data compiled by Bloomberg.

China became a net coal importer for the first time in 2009 after foreign purchases more than tripled to a record of 125.8m tonnes from a year earlier.

Thermal coal imports by India may climb to 72 m tonnes in 2011, according to Tata Power, which is building a coal- fired plant at Mundra in western India with a capacity of 4,000 megawatts.

“In the medium to long term, European demand will recover to historic levels and increase further as domestic production of coal decreases, increasing demand for South African coal,” said Exxaro’s Mgojo.

“However, Asian demand will however continue to grow and South African coal will continue to flow into this market,” Mgojo concluded.

Source: www.lloydslist.com