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Coal Prices May Rise If South Africa Limits Exports (Update1)

By Jesse Riseborough and Archana Chaudhary

May 20 (Bloomberg) -- Global thermal coal prices may rise if South Africa, the biggest supplier of the fuel to European electricity companies, decides to limit exports, an analyst at National Australia Bank Ltd. said.

``This is going to have a fairly significant impact as South Africa is a key exporter in the thermal coal market,'' Gerard Burg, a minerals and energy economist at National Australia Bank in Melbourne, said today by phone.

South Africa, the world's third-largest thermal coal exporter, is developing a strategy that may limit shipments to help ease a domestic power crisis, Bheki Khumalo, a spokesman for the Department of Minerals and Energy, said in an interview yesterday. Prices for the coal have surged this year on supply constraints in Australia and South Africa and increased domestic demand in China and India, Asia's fastest-growing major economies.

Any further rise in global coal prices will be a cause for ``grave concern'' to Indian importers, said R.S. Sharma, chairman of NTPC Ltd., the nation's biggest power generator. The company plans to import more than 5 million metric tons of coal in the year to March 2009, Sharma said in a phone interview from New Delhi.

``If a supplier the size of South Africa cuts exports, it's going to raise prices and hurt everyone's plans,'' Sharma said. NTPC imports most its coal from Indonesia and Mozambique.

The company, which reported a 39 percent drop in profit in the quarter ended March 31, needs to ensure coal supplies to meet its target of almost doubling capacity to 51,000 megawatts in the next four years from the current 29,394 megawatts. The generator plans to invest as much as $1.3 billion buying stakes in coal mines abroad.

Australia, Indonesia

Any cut in coal exports from South Africa will result in European consumers seeking volumes elsewhere, National Australia Bank's Burg said. ``Producers in Australia and Indonesia will be the key winners but there are obviously some question marks as to how much producers in the region can really increase supply. It may simply be a price effect more than anything else.''

South Africa's energy regulator said yesterday the government should investigate why state-run Eskom Holdings Ltd. exported double the power it needed to during a local electricity shortage that cost the economy about 50 billion rand ($6.6 billion).

Eskom missed its own target for increasing coal stocks to a minimum of 20 days of use by April 30, raising the risk of power cuts with the onset of winter in the southern hemisphere. Stocks were at 16.2 days on May 14 after dropping below 10 days in January, when heavy rain further depleted stocks.

Coal for delivery in northwest Europe rose to a record last week on limited global supplies of the fuel. Coal for delivery to Amsterdam, Rotterdam or Antwerp with settlement next year rose as high as $152.25 a metric ton on May 16.