PREVIEW-S.East Asia coal demand growth adds to supply worry http://www.reuters.com/article/companyNewsAndPR/idUSSYD20604120070601
Fri Jun 1, 2007
By Fayen Wong
SYDNEY, June 1 (Reuters) - Growing Southeast Asian demand for coal imports for power generation will add to a list of concerns for industry experts meeting in Bali next week, together with China's switch to a net importer and infrastructure constraints.
Increasing coal demand from China and India is widely known as the main cause for the near doubling in prices since 2004 to above $55 a tonne, but a likely second wave of growth in Vietnam, Malaysia and Indonesia has been largely overlooked.
Many analysts say that wave is coming, unfettered by the environmental pressures of big countries such as Japan and fuelled by a desire to wean power plants off oil or gas.
"The $60 mark isn't too far away," said Gerard Burg, an analyst at the National Australia Bank. "Growing Southeast Asian demand is certainly significant, especially when the fundamentals are showing a very tight market."
Executives and traders from Asia's top coal producers and consumers will meet at the Coaltrans Conference on June 3-6, where the 50 percent or over 50 million-tonne increase in Indonesian exports since 2004 will be a featured topic.
As exports are set to rise another 11 percent to around 170 million this year, miners are beginning to struggle to find port capacity to handle their shipments. Domestic demand is also surging as the government aims to raise the share of coal-fired power generation to 33 percent from 24 percent by 2009.
Indonesia, like Malaysia, is rich in natural gas, but can generate more income from exporting the cleaner fuel as liquefied natural gas to countries such as Japan, which have few alternatives.
Domestic coal demand will rise 10 percent to 44 million tonnes this year, the chairman of the Indonesian Coal Mining Association said this week.
Vietnam, where frequent power shortages have raised warnings of risks to booming economic growth, imposed a 10 percent coal export duty in December to reduce sales abroad, taking high-quality anthracite coal out of the Asian market.
The government expects to import a third of its coal by 2015, even though annual output has more than doubled since 2002 to over 33 million tonnes, according to the BP Statistical Review.
Coal production in Thailand has risen only 8 percent since 2002, while consumption has jumped by 28 percent, according to BP, and the government is bent on raising its share of coal-fired power to offset a heavy reliance on natural gas.
By the end of next year, Malaysia and Thailand will have added some 5,000 megawatts of new coal-fired power capacity since early 2006, according to estimates from the Australia Bureau of Agricultural and Resource Economics (ABARE).
Last year ABARE said total thermal coal imports by Southeast Asian countries would rise from 23 million tonnes in 2005 to 37 million tonnes by 2011, an increase equivalent to about a quarter of the shipments to South Korea, the world's number-two buyer.
TRADES RESHUFFLED
As the world's top two producers Australia and Indonesia struggle to churn out more coal to feed Asia's insatiable demand, rising prices are likely to attract imports from the Atlantic, thinning the normal flow of South African coal to Europe.
"Even as Australia and Indonesia raise production, supply will barely be able to keep up with demand," said Clyde Henderson, a manager at Hill & Associates Consulting.
"North Asian utilities could start to get coal from South Africa because supply and demand in the Atlantic is softer than in the Pacific," Henderson said.
A jump in prices would also hit Asian utilities such as Japan's Tokyo Electric Power Co. (TEPCO) (9501.T: Quote, Profile, Research) and Korea Electric Power Corp. (KEPCO) (015760.KS: Quote, Profile, Research), and could set the stage for more takeovers in the sector, analysts say.
South Korea's KEPCO and India's Tata Power Co. (TTPW.BO: Quote, Profile, Research) are trying to secure overseas coal mines to feed power plants. Tata Power, which has signed a deal with Indonesia's PT Bumi Resources Tbk (BUMI.JK: Quote, Profile, Research) in March to buy 30 percent stakes in Bumi's PT Kaltim Prima Coal and PT Arutmin Indonesia, has said it was eyeing coal mines in Australia and South Africa.
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