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China's demand stokes coal prices

THERMAL coal spot prices, which smashed records earlier this year, are expected to remain high as Chinese demand increases.

Australia's spot prices out of Newcastle broke through $US60 a tonne in late May, nearly treble the $US23 reached a year ago.

Spot prices out of Richards Bay in South Africa, quoted at $US55 a tonne, were expected to reach $US60 a tonne within weeks, according to a recent Goldman Sachs JBWere report.

Supply pressures this year have been generated from Australia, the world's biggest coal exporter, retarded by rail capacity restrictions at its Newcastle docks and a worse than usual wet season.

But Goldman Sachs JBWere analysts and an AME Minerals Economics report said it was China, as it transformed from a major steam or thermal coal exporter to an importer, that had fuelled the increases as consumers tried desperately to lock in supply.

Goldman Sachs JBWere said Australia, which recently lost market share to Indonesia and China, was well positioned to recoup ground.

AME Minerals Economics said in its May report: "The supply/demand balance has switched from a position of global oversupply to one of regional shortages, with customers scrambling to secure tonnage."

AME said China's export performance had destabilised thermal coal markets, first by rapidly increasing supply then by withdrawing export tonnage in favour of domestic markets during the power crisis that hit in the winter of 2003-04.

China's coal stock has decreased 20 per cent to 98 million tonnes at the end of April a 20-year low, according to recent analyst reports.

Goldman Sachs JBWere analysts, after a recent research trip to China, said the bullish house view on thermal coal was based on the premise that China was unable to produce sufficient coal to meet its internal requirements and maintain exports at 2003 levels.

Goldman Sachs JBWere analyst Paul Gray said in a note to clients: "(There is) mounting evidence we are embarking on a longer duration period of high thermal coal prices than previously thought,"

World coal imports, which totalled 701.9 million tonnes in 2003, are forecast to rise nearly 5 per cent in 2004 to 734.5 million tonnes.

Australian Associated Press

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