China Spurs Coal-Price Surge

China is doing for coal what it once did for oil: pushing prices to new highs, adding more pressure to the creaking global economy.

China has long been a huge supplier of coal to itself and the rest of the world. But in the first half of last year, it imported more than it exported for the first time, setting off a near-doubling of most coal prices around the world. The capper came in late January when a winter of punishing snowstorms and power shortages led Beijing to suspend coal exports for at least two months.
Just since then, Asian prices have shot up an additional 34%. Last week, coal benchmarks hit all-time highs in the U.S., Europe and Asia. That’s adding to orries over global inflation already stoked by rising prices for everything from crude oil to cattle feed. “The velocity of the change has been remarkable,” says Thomas Hoffman, senior vice president for external affairs for U.S.-based coal supplier Consol Energy Inc., which he says is considering holding off on some commitments to supply coal to see if prices rise even further.

For the world, which uses coal for about 40% of its electricity, the result is similar to what happened after China became a net importer of oil in 1993. But the Chinese factor is unfolding much faster with coal. It wasn’t until China’s industrial development shifted into overdrive this decade that the nation began to shake global petroleum markets. Oil’s big price surge came after widespread brownouts in China in 2004 forced factories there to buy diesel fuel for backup generators, increasing the country’s foreign oil demand.

China’s need for coal is rising as other factors around the world are putting severe strain on supply for the fossil fuel. Flooding at major mines in Australia since mid-January has dramatically stunted that major coal producer’s exports to Asian markets. For more than a year, meanwhile, Australia’s overloaded ports have been choked with cargo vessels, forcing ships to wait in long lines to dock and get their coal. Power shortages and blackouts in South Africa amid rising demand there have curtailed exports to Europe. In Russia, another major coal producer, rail-car shortages have frustrated attempts to meet growing world demand.

Demand is rising quickly elsewhere. Japan, one of the world’s biggest importers, is burning even more coal since an earthquake damaged a nuclear reactor last year, doubling one utility’s coal intake. Longer-term pressure comes from India, which has mounted a major expansion of coal-fired electricity plants that is driving up the country’s coal imports despite its large domestic reserves. Indonesia has been moving over the past year or so to divert more of its coal stores to domestic use, as the coal industry there has been depleting its higher-quality coal reserves.

Even U.S. coal producers are ramping up exports to Europe, as buyers who for years were uninterested in American coal now are scrounging for supply. “There’s a butterfly effect,” with issues inside China pushing up demand and prices for the fuel from other coal-producing nations, says Vic Svec, a senior executive at Peabody Energy Corp., the world’s largest private-sector coal producer, based in St. Louis. “Demand from Beijing can ripple back to Queensland, Australia, or Gillette, Wyoming.”

Wall Street Journal