Richards Bay Coal Rises to Record on Europe Utility Speculation

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30 Jun 2008

Coal shipped from South Africa's Richards Bay, site of the world's largest export terminal for the fuel, rose to a record on speculation European utilities are building stocks for use in the fourth quarter. Prices at the port advanced $12.50, or 8.5 percent, to an average $159 a metric ton in the week ended June 27, data from McCloskey Group Ltd. show. There's "little reason'' for coal prices to weaken in the months ahead as supply growth trails rising demand, BNP Paribas SA said in a June 25 note There's speculation generators ``think prices will continue rising, so are buying while they can,'' Andrew Wells, an assistant editor at Petersfield, England-based McCloskey, said yesterday by phone. ``There's buying for October, December, the fourth quarter.''
Richards Bay is the biggest source of coal burned for Europe's power. Prices at the port jumped 19 percent this month with supplies disrupted when 26 coal wagons derailed on June 21. Asian buying at the port has risen because Pacific-region supplies are curbed by Australian transport bottlenecks and fewer Chinese coal exports.
Transnet Ltd., South Africa's state-owned transport company, said yesterday it carried 63.5 million tons of coal to Richards Bay by rail in the year ended March 31, 5.2 percent less than the year before. At the current average monthly rate, it will ship 57.6 million tons of coal this year compared with export capacity of 76 million tons.
While Richards Bay is the world's biggest coal-export terminal, Australia's Newcastle port ships more of the fuel from two terminals. Prices at Newcastle, a benchmark for Asia, jumped to a record for a fifth week as demand rose from countries including India and China.
Newcastle Port
Prices at the New South Wales port rose $9.44, or 5.8 percent, to $172.10 a ton in the week ended June 27, according to the globalCOAL NEWC Index. That's higher than Richards Bay and may spur purchases of South African coal as buyers seek cheaper supplies.
The cost of shipping coal fell 16 percent this month, according to the Baltic Dry Index, a measure of commodity- shipping prices, last updated on June 27.
Coal derivatives, financial instruments used to bet on future prices, climbed to a record for a third day. Coal for delivery to Amsterdam, Rotterdam or Antwerp with settlement next year advanced $4.50, or 2.2 percent, to $212 a ton by 4:33 p.m. in London, according to ICAP Plc prices supplied to Bloomberg.
Generators in the 27-nation European Union need permits to burn fossil fuels, with coal needing twice as many as cleaner natural gas. RWE AG's Didcot A generator in the U.K. is one unit that can switch between the fuels.
Coal Derivatives
A U.K. power utility could make a profit of about 21.90 pounds ($43.56) a megawatt-hour burning Dutch-delivery coal compared with 11.40 pounds burning U.K. natural gas in the six months through September 2009, the clean spark-spread and clean dark-spread show.
The spreads are calculated using the forward prices today for power, gas, coal and permits from energy brokers and exchanges published by Bloomberg.
Coal generates 40 percent of the world's electricity, according to German coal-importer group Verein der Kohlenimporteure E.V.

Source: Bloomberg