Tuesday, January 29, 2008

Coal Shortages?

China is facing widespread, temporary power shortages that could affect global energy markets if they aren't resolved soon. The shortages stem from a number of factors, but at their core is a pricing and distribution system that is having trouble keeping up with the country's rising demand for electricity. ... It is unclear how bad this year's power shortages will be. But this time there is an additional worry: China is becoming a big coal importer. The world's biggest consumer and producer of coal, China relies on coal for 78% of its electricity. ... Starting in 2006, coal prices were liberalized, allowing them to rise 10% each year after. But at the same time, electricity tarriffs have been kept flat or lowered by government officials worried about inflation and social unrest if prices rise too high", WSJ, 24 January 2008.

"Mining giant BHP Billiton said it won't be able to meet its commitments to ship Australian-mined coal used for steel, potentially putting further upward pressure on steel prices", WSJ, 25 January 2008.

Coal demand looks insatiable for the time being. Given that China has power shortages, I expect coal prices to rise worldwide.

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