Global demand lights fire under coal

After years of stagnant demand, coal has come back to life as producers worldwide respond to rising demand from developing countries.

A tipping point came this year when China, one of the world’s leading producers, for the first time became a net importer of coal.
“China’s export inflection combined with continued supply problems looks very promising,” said Daniel Brebner, a commodity analyst at UBS, who predicts prices for coal used to make steel will rise 20% in 2008.

After rocketing to a high of US$125 a tonne three years ago, metallurgical coal settled back but prices are now soaring again, with recent spot prices as high as US$135 a tonne.

“It’s principally demand out of China that is pushing prices up,” said John Hughes, an analyst at Desjardins Securities.

Thermal coal, or coal used to fire electricity-generation plants, is also enjoying surging demand as utilities around the world scramble to cope with skyrocketing energy use. Thermal coal used to fire European generators moved up for the fifth day to the highest price in more than two years, according to Bloomberg News.

The United States is also a major player in the market, especially in thermal coal. Mines in the Powder River Basin of the northwestern United States account for about 25% of that country’s production.

Amid declining global supplies of oil, governments everywhere are increasingly focusing on coal as a potential energy substitute, analysts said. Another factor behind the rising coal demand is the development of new clean-burning technology, making it much more attractive as a power source.

Financial Post