Coal news and updates

Demand to drive up coal prices: Glencore

Thermal coal prices would rise in the medium term as current prices forced many producers to export at a loss and because booming electricity demand in Asia would drive up the market, mining major Glencore Xstrata said yesterday.

Thermal coal prices have dropped around 40 percent in the past three years as healthy exports from major producers such as South Africa, Australia, Colombia and the US have clashed with modest demand following the global financial crisis.

Glencore Xstrata said prices would have to rise as the oversupply forced many thermal coal exporters to sell at a loss.

“Current price levels are unsustainable in the medium term with close to 30 percent of seaborne thermal production being cash cost negative,” the company said in an analyst presentation with clients.

“Exceptional coal cost competitiveness versus other fuel sources combined with continued strong demand from new generating capacity in Asia will drive higher prices in the medium term,” it said, without giving a precise time frame.

Although China, the top energy consumer, is making efforts to shift more from coal-fired power generation towards using more gas, emerging markets in Asia are expected to grab some of that flow as they continue their race to industrialise.

Because of high natural gas prices in Europe and Asia, coal is more attractive as a fuel for power generation there than gas.

Only in North America, where a shale gas production boom has led to a sharp fall in domestic gas prices, can gas compete with coal on a large scale in the power sector.

To prepare for rising demand mainly in Asia, Glencore said it was expanding its coal production in South Africa by over 55 million tons a year between 2013 and 2021, spread over 10 projects.

The mined coal would be used for exports and to supply power utility Eskom.

Glencore’s South African coal production stood at 68 million tons last year, although the company said that only 49 million tons of this was saleable.

London-listed Glencore started trading on the JSE last week, adding to its other secondary listing in Hong Kong.

Source: Reuters