Coal awaits boost from China as US power companies cut use

Nov 17 2012, 03:36 IST
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SummaryGlobal coal prices have tumbled by more than 30% in the past one year and 4% so far this month on slowing economic growth, tighter environmental norms and the promise of shale gas as an attractive alternative for power generation in the US.

Global coal prices have tumbled by more than 30% in the past one year and 4% so far this month on slowing economic growth, tighter environmental norms and the promise of shale gas as an attractive alternative for power generation in the US. This has hurt global miners, including Rio Tinto and BHP Billiton, which are increasingly cutting costs to improve margins and looking for a pick-up in Chinese demand.

The average price of the benchmark Australian thermal coal dipped for a third straight month in October to $88.29 per tonne Ė compared with $127.92 a tonne a year earlier Ė and has since dropped to $84.45.

The price has crashed by more than 56% since scaling an all-time-high of $192.86 in July 2008, thanks to a supply glut and poor demand from top energy users such as the US and China.

Similarly, natural gas prices have plunged with expanded production from new fields, making it increasingly affordable for power plants as an alternative fuel. The price of natural gas has slumped over the years by more than 72% to $135.84 per thousand cubic metres now since hitting a record $490.82 per thousand cubic metres in October 2005.

Rio Tinto recently said its Australian Coal & Allied Industries unit, which produces 30 million tonnes of coal annually, would trim jobs mainly due to a sharp drop in coal prices. BHP Billiton, the world's biggest exporter of metallurgical coal used in steel making, last month warned that cost pressures were making it hard to justify expansions in Australia, with coal prices unlikely to go back to all-time highs.

Adding to miners' concerns, the US is finalising environmental standards which would make it hard for power firms to justify the use of coal when supplies of cleaner alternative fuels, including shale gas, remain adequate at affordable prices, analysts said.

No wonder many US power firms are increasingly switching to gas as fuel for generation. The fuel cost for gas-based power plants is estimated at R2.30 per unit in the US, slightly more expensive than the R2 a unit incurred at coal-fired units, analysts said.

However, emissions at a plant using gas plunge by half compared with coal-fired stations, making the fuel a more attractive option in times of increasing global resolve to fight the climate change.

According to US government data, coal-fired generators will likely produce around 37% of the country's power in 2012, down from 42% a year before,

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