Resource News

BHP, Anglo, Xstrata Ship Coal 10,000 Miles on China Price Surge

March 12 (Bloomberg) — BHP Billiton Plc, Anglo American Plc and Xstrata Plc are shipping coal 10,000 miles to China from their Cerrejon mine in Colombia for the first time this year because of surging demand and rising prices in Asia.

Cerrejon, the world’s largest open-pit mine of coal for export, started sending coal shipments through the Panama Canal to China after prices became “much better” than those in Europe, Leon Teicher, the venture’s chief executive officer, said in an interview. Cerrejon may also make its first sales to India this year, he said.

China’s accelerating economic growth is stoking demand for coal to fuel power plants and steel mills. Prices 45 percent higher than in Europe make it worthwhile to transport the fuel to ports that are twice as far as European harbors such as Rotterdam. China’s coal imports tripled last year to 126.6 million metric tons, according to the China General Administration of Customs.

“There is a transition,” Teicher said in a March 10 interview in Bogota. “Prices in the Pacific are much higher than they have ever been relative to Europe.”

Thermal coal used by power utilities climbed 22 percent over the 12 month through March 5 to $107.7 in Qinhuangdao, a port in northeastern China, from $88 a year earlier, according to data from McCloskey Group Ltd. The price was 45 percent higher than the $74.4 per ton for coal delivered to northwestern Europe.

Chinese Growth

China will be a net importer of coal this year even as its own production climbs, Teicher said. The Asian nation’s gross domestic product expanded 10.7 percent last quarter, the fastest since 2007. Last week, central bank Governor Zhou Xiaochuan said policies aimed at stimulating the economy must end “sooner or later.”

“I don’t believe that China is a bubble,” Teicher said. “China has arrived.”

Production at Cerrejon, located on the northeastern edge of Colombia, will rise to 31 million to 32 million tons of coal this year, after falling last year as demand waned in Europe, he said. BHP, Anglo American and Xstrata each own a third of the mine.

Annual output capacity may be expanded to 40 million tons at a cost of $800 million to $1 billion once “the market will take that expansion,” Teicher said. “Right now is not yet the time.”

Last year, Cerrejon sold most of its coal to Europe, the U.S. and Latin America.

Demand in Asia will help maintain the price of the fuel and may lead to gains, he said…read more at the Bloomberg