Further hike in coal prices inevitable next year

(Published in Today, Phil. Star, Manila Bulletin,
Manila Times and Daily Tribune – December 19, 2003)

With the strong domestic demand in China and its government’s intervention in the coal market, the increase in coal prices worldwide is likely to continue in 2004.

In the Asia market alone, coal price is expected to increase by at least 30% from the current prices. The projection is based on the trend in prices of coal which has started to skyrocket since August 2003.

A delegate of the meeting between the Philippine National Oil Company and officials of Shanxi Coal Import Export Group Corporation (SCIEGC) in China said the situation leaves no other option to the coal dependent industries in the country but to purchase highly priced coal. SCIEGC, headed by the governor of Shanxi province, markets the coal from different mines in the province and is one of the three Chinese companies licensed to export bituminous coal.

Chinese government has ordered to limit its coal exports to ensure that its internal demand will be supplied and safety issues in the coal mines are addressed following the series of mine explosions in July and August. This reduction has resulted to shortage of coal supply in the market.

This situation was confirmed by Republic Cement Group claiming that coal supply from China is expected to become available by March 2004 when coal mines satisfy the safety requirements and provided that coal exports will not be restricted, although no guarantee was given that prices will eventually stabilize.

Based on the latest price index of Platts Coal Trader International, China’s Qinhuangdao FOB (freight on board) price as of December 11, 2003 has gone up to USD38.00 per metric ton from USD26.50 per metric ton in July. The price excludes the cost of freight which is currently averaging from USD14 per metric ton. Qinhungdao price serve as the basis for the coal prices in Asian market.

The source said the increase was almost double of what has been projected and contracted by coal dependent industries in the country like power generating companies and cement plants.

The increase in coal demand and prices has also seemed to lure some coal miners to take advantage of the situation and not to honor its contractual obligations and sell their coal supply instead to whoever offers the highest price.

PNOC disclosed last week that they are looking at Australia as possible coal source. Although supply from Australia is an option, this move might be costly one as freight cost from Australia is close to twice the freight cost from China.

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