Asian coal firms targeting Europe

Asian coal firms targeting Europe

LONDON (Reuters): European electricity generators are being increasingly targeted as a market for Indonesian and Chinese coal exports as the cost of transporting it half way round the world slides to two-year lows.

"We're seeing a lot of Chinese coal offered into Europe, more and more Indonesian coal and some Australian is creeping in," coal analyst John Howland of the McCloskey Coal report told Reuters on Wednesday.

The door has been opened by plummeting freight costs for the giant Capesize ships that work the coal and iron ore trades, and brokers said it could remain open for much of this year.

"The negative trend for Capesize rates will continue for most of this year," said a London ship broker. "We're not seeing high volumes of coal from Asia yet, but we could see more in the future," he added.

An analyst from London shipbroker SSY said the cost of transporting coal between Newcastle in Australia and Rotterdam had fallen from a peak of $18.50 per ton in the first week of November 2000 to $8.75 per ton this week.

The cheap freight environment could help Asian producers expand their markets.

"At the moment it looks as if China will be putting out at least an extra 15 million tons of steam coal this year, and we think it's looking at markets further afield than Asia," said Howland.

Brokers said that more than half of Europe's total coal requirements - including metallurgical coal - of about 200 million tons a year were imported from abroad.

McCloskey's Howland said that Finland's largest thermal coal importer, PVO, took a Chinese cargo last month, while there were rumors in the market that two German power stations had also bought Chinese cargoes.

Denmark's Energie 2 recently bought a Capesize shipment from China, as did EdF Trading.

Brokers said that although Europe's traditional supplies from South Africa and Colombia had also become more competitive in the new cheap freight environment, the effect was proportionally higher on trades from Asia that had a longer sea leg.

London shipbroker SSY said that Capesize freight had not been so low since the end of the Asia crisis.

"Rates continued to plunge last week... Pacific round voyage rates have halved since the end of June, to sit at their lowest levels since the first half of 1999," it said in a market report.

Brokers said the freight market weakness stemmed from falling demand for ships in Asia, coinciding with the delivery of an armada of newly constructed ships from Asian shipyards.

Shipbuilding analyst David Holder of LR-Fairplay told Reuters that 22 new ships had been delivered so far this year and 16 more were due, equating to nearly seven percent of the existing world fleet.

"That's a fair lump this year, and there are already 52 provisionally booked for construction from 2002 onwards," he said.

Other brokers talked of negative demand factors for Capesize ships, including a slowdown in Chinese iron ore imports this month. "We've got no proof of that at the moment, but next month the steel production figures should be down," he said.

The average Capesize ship is almost the size of the Empire State Building and is too large to use the Panama Canal so instead must pass around its namesake, Cape Horn.