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Editorial comment

Coal may be the world’s most abundant fuel but not enough of it is coming out of the ground. Increasingly tight supplies will force greater competition for available coal – both met and thermal – with consequent price rises.

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According to recent reports, Europe’s winter buying could clash with a predicted leap in China’s coal demand, while demand from India will also take an increasing amount of coal from South Africa. More of the European supply will have to come from Russia: a small irony considering arguments over energy security so often promote coal’s import reliability over Russia’s dominance of European gas imports. Expect prices pushing up to the US$ 100/t mark, at which point coal-to-gas switching could begin to look attractive.

In Asia, Australian produces are reporting increased Chinese enquiries for thermal coal as Chinese utilities seek to stockpile coal for the peak summer period – at least one Chinese province has already warned of large scale power shortages due to tight supply this summer. As well as driving up the process, this could force other buyers, such as South Korea, to look further afield for their imports.

The China effect is also hitting the met coal market as it increases imports to meet its supply gap. Steel makers in Japan are reported to have agreed a 12.5% increase for coking contracts with BHP Billiton, bringing prices for met coal to US$ 225/t. Citigroup expects prices to hit US$ 300/t in H2.

Good news for the coal industry. But in the inevitable rush to produce more, safety must not be forgotten. Deaths at Chinese coal mines increased in Q1 of this year, reversing the recent downward trend in fatal accidents seen in the country. Officials blamed the push to increase production to keep up with an economy that is booming again. The US, Turkey and Russia have also recently lost miners in high profile incidents.

Coal is a valuable commodity set to increase in value – but the most valuable commodity in a mine is the miners. The giant companies that dominate the industry should remember that well.