Energy Discussion

By MARI IWATA
January 29, 2008

TOKYO –

China’s freeze on coal exports will have little immediate impact on many buyers, with the exception of Japan, but the disruption could be a forerunner to major upheavals and more price rises in the Asian coal sector for years to come.

While buyers in South Korea and Taiwan, two of China’s biggest coal customers, aren’t particularly concerned by the short-term supply aspects of Friday’s announcement of a halt to the trade, the news has already boosted coal prices. It has put Japan’s buyers in a quandary given that they are in the midst of coal-supply talks with China.

The extent of any impact “will depend on how long the ban lasts,” said Atsuo Sagawa, senior analyst for the Coal Research Group of Japan’s Institute of Energy Economics. “On average, Japanese utilities have a month or more of coal stock, and other producers will keep deliveries going. But if it prolongs, it is difficult to imagine what happens.”

China’s transport ministry suspended coal exports, citing power shortages and difficulties in getting coal to generating plants due to an unusually harsh winter and heavy snowfalls. The export freeze is likely to last at least five or six weeks.

Heavy users of coal in North Asia won’t be able to rely on Indonesia and other major suppliers in the region should the supply squeeze continue. Indonesia isn’t expected to be able to meet rising demand from overseas buyers due to increasing consumption in the domestic market, an industry official said yesterday.

“There is increasing demand for coal exports, mainly from China and India, but we can’t meet all demand as we must also safeguard domestic supply,” said Soedjoko Tirtosoekoetjo, chairman of the Indonesia Coal Producer Association.

Taiwan expects the impact from China’s temporary coal-export suspension to be limited, partly because Taiwanese importers have been reducing their reliance on Chinese coal over the past year, a Bureau of Energy official said.

However, over the longer term, China’s rising domestic demand will underpin coal prices in Asia, and news of the freeze comes at a time when many supply talks are taking place, said Shunichi Yamamoto, chief editor of Coal & Power Report. “China’s coal prices for exports soared to 680 yuan [$94] after the news of the export ban. It was 620 yuan on Jan. 10,” he said.