Australian mining analyst Tim Treadgold projects that coal will be the "king" commodity in Asia in 2010 "driven by an astonishing rise in Chinese thermal (electricity-producing) coal imports to meet rising demand in an economy that continues to expand at an annualised 9%; and the growing Chinese production of steel, which consumes high-value metallurgical (steel-making) coal."
A recent report from the Australian government's statistics agency ABARE confirmed that, in the first nine months of 2009, China’s thermal coal imports more than doubled to 60 Mt compared with 27 Mt a year earlier. “For 2009 as a whole China’s thermal coal imports are estimated to increase by 126% to 80 Mt,” the report said. Australia’s exports of thermal coal in 2008-09 are estimated to have increased by 19% to 136 Mt, but with growth likely to slow to about 3% this year. Metallurgical coal volumes are tipped to rise by 21% this year to 151 Mt.
According to Treadgold, takeover activity has aided the recent performance of pure play coal stocks, with deals such as:
• Felix Coal falling to China’s Yanzhou in a $3.5 billion takeover.
• Jindal Steel of India competing with Meijin Energy of China for the small Australian coal stock, Rocklands Richfield.
• Gujarat Minerals appearing to beat Hong Kong’s Crosby Capital in a bidding dual for Rey Resources.
• Macarthur Coal launching a share-swap and cash bid for Gloucester Coal.
"The beauty of the Australian coal sector, unlike gas and uranium," he wrote, "is the terrific depth and diversity of the listed market, the constant stream of fresh floats, intense competition for assets from Asian investors (Japan and India are players as well as China), and high-profile entrepreneurial activity by some of Australia’s richest people." Gina Rinehart is "pushing ahead with plans to develop coal mines in Queensland, claiming the mines, rail and port have a price tag approaching $15 billion and could eventually export 40–60 Mt/y of coal. At the same time, Australia’s 'sixth-richest man', Clive Palmer, is also mulling over a 40 Mt/y coal business as part of his Resourcehouse venture."
As for the factors that will keep a fire burning under the coal sector in 2010 (and beyond) Treadgold lists as the most important "the absolute certainties" that:
• Asian demand for electricity will not decline, and is highly likely to double over the next seven to 10 years.
• Australia has the coal Asia wants. It is within easy shipping distance and Australian mining companies are more reliable than Indonesian rivals.
• Renewable energy will not replace fossil fuels (this decade at least).
• Uranium-fuelled nuclear power stations take a long time to approve, build and commission.
• Competition from gas, which is price-pegged against oil, will only make modest inroads into coal demand, and possibly help drive the coal price.
"All of this leads to a final point: figuring out the future price of coal, a process in which investors must distinguish between thermal (electricity-producing coal) from metallurgical (steel-making coal)," he advised. "Thermal is not in short supply. Metallurgical is. However, while demand for metallurgical coal will drive the share price of companies such as Riversdale and Macarthur, there is an equally powerful force driving the thermal coal price, and that is the price of its primary competitor, oil."