Truesee's Daily Wonder

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Sunday, December 27, 2009


Stocking full of coal is the best gift this Christmas

Old King Coal will stay on the commodities throne for years

Waking up to a stocking full of coal is probably not the most exciting start to a Christmas morning. But at least it's got a better chance of increasing in value by next year than a Wii Fit or a Zhu Zhu Pet.


 Rowena Mason, City Reporter (Energy)
6:16PM GMT 27 Dec 2009


Coal - Old King Coal will stay on the commodities throne for years Green problems with coal have not tarnished its prospects as a 'key fuel for the future' Photo: Reuters

There are many dismissing coal as the unwanted black sheep of the fossil fuel family, blamed for 40pc of the world's carbon dioxide emissions that contribute to global warming.

But in defiance of environmental concerns, there has been little sign that any fall off in coal demand this year is due to anything other than the recession.

Analysts from JP Morgan reckon that thermal coal, used in power stations, will rise from $70 to $85 per tonne next year, based on rebounding demand from China and India. While global inventories have been unusually high in the downturn, the bank believes stocks may decline from 40m tonnes this year to 22.7m in 2010.

"Supply will be tight in the next two years," said Stevanus Juanda, a mining analyst. "In the second half of 2009, we have observed sizeable imports of coal by China, due to the closure of mines in the Shanxi region and rise in electricity generation."

Experts are also predicting a shortage in coking coal used to make steel over the next year, driven up 12-fold by demand from China.

Macquarie, JP Morgan and Morgan Stanley estimate that prices may jump by between 23pc and 38pc in 2010, as global demand rebounds.

And the International Energy Agency believes that coal will account for 29pc of global energy needs in 2030, compared with 26pc in 2006. For Deloitte's energy consultants, this all goes to show that green problems with coal do not yet tarnish its prospects as a "key fuel for the future".

Listening to the political leaders at the Copenhagen climate change conference, you could be forgiven for imagining that the world was about to be seized with a Thatcherite fervour for closing down the mines.

That was the political rhetoric. But the summit failed to reach agreements on targets for lowering emissions and how they should be financed – mostly because burning coal is still in the national economic interest of most developing countries.

In the aftermath of the Copenhagen chaos, Western politicians have been blaming China and India for sabotaging the talks. If true, it is hardly surprising that they want to resist curbs on the predicted growth of their emissions, largely based on soaring use of coal.

The Copenhagen accord may have been vaguely worded, but its implications for commodities are clear: businesses still have little incentive to invest in more expensive renewables and nuclear power while coal and gas are cheaper.

Europe has decided to start closing coal plants without "carbon capture" facilities and China is keen to get its hands on this future technology, but the fact remains that old coal stations are still being built at the rate of one a day.

With "clean coal" technology unlikely to be commercial for another decade, it at least remains a helpful myth for politicians and companies to justify continued investment in the commodity.

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