(Corrects paragraph 14 to clarify that AXA is not Norway's
state pension fund, but a listed French company, and corrects
spelling of Rockefeller)
* Thermal coal prices soar as market tightens
* Coal still in demand for power generation
* Countries under pressure to shift to cleaner fuels
By Henning Gloystein and Nina Chestney
SINGAPORE/LONDON, Oct 5 Talk of coal's demise is
proving premature, with prices soaring from 10-year lows this
year and further rises on the cards into 2017 as the "dirty"
fuel continues to be very much in demand for power generation.
A global push to reduce greenhouse gas emissions in favour
of renewable energy has seen investors and funds ditch coal
assets for cleaner sources.
But coal is still the world's second primary fuel after oil,
according to the International Energy Agency.
Following half a decade of steady decline, thermal coal
physical and futures prices have all rallied between 50 and 80
percent this year, taking many in the industry by surprise.
The price recovery is a boon for mining companies, such as
Whitehaven Coal, Rio Tinto, and Glencore
, and stands in sharp contrast to forecasts by Goldman
Sachs and the International Energy Agency, who have said coal is
in terminal decline.
Tightening market conditions in both the Atlantic and
Pacific basins mean that further price rises are possible, as
demand picks up from Europe to Asia and as supplies fall.
"I don't think this rally is over yet. There is still price
upside for physical markets for the fourth quarter and into Q1
2017," said Rodrigo Echeverri, head of coal analysis at
commodity trading house Noble Resources in Singapore.
Several traders say an influx of new cash into API2 coal
futures, which have risen almost 80 percent this
year to over $65 per tonne, was also a sign that miners and
speculators are buying into a higher market.
Strong import demand from China, following domestic mining
caps which have forced power generators back into the import
market, as well as low coal stocks in South Korea, have
tightened the market in Asia, Noble's Echeverri said.
There is lower coal supply from Indonesia and Australia due
to cutbacks but also heavy rainfall this year, which has
squeezed the market and pushed prices higher, traders said.
Demand has even increased in Europe due to lower nuclear
power availability in countries such as France and Belgium;
lower wind and hydro power generation so far this year and
expectations of a cold winter for the rest of 2016.
Nevertheless, the future for coal in the longer term is less
rosy. Nations agreed in Paris last year to unprecedented rates
of decarbonisation, which will require a radical shift from
fossil-fuel based power to clean energy.
This has prompted many countries, such as Belgium, Britain,
Austria and Portugal and others in Europe, to close coal plants
in favour of renewables and nuclear. Several countries are
introducing increasingly stricter measures to limit emissions
from power plants.
Hundreds of investors, such as the Rockefeller Family Fund,
Norway's state pension fund, and French insurance group AXA
, are also divesting coal.
Yet at the same time, some countries, such as Australia,
Poland and Turkey have plans for new mines and to build more
coal plants to secure their energy independence or meet growing
energy demand, as the fuel remains relatively cheap.
Even though traders say recent price increases had been
warranted given the tighter market, they warned that far higher
prices are unlikely.
"I can't see (Newcastle) thermal coal going to $100/tonne
any time soon, especially with the Chinese now relaxing their
production constraints," said a coal investment advisor who did
not want to be identified.
To rein in spiralling costs for utilities, China in late
September relaxed some of its previously introduced mining caps.
"The (Chinese) initially worked out (the regulation) on the
basis of a $60/tonne price; now it's hurting their steel
business so I think they really need to ramp up production again
to see the price go back to around $55/tonne," said Wayne Bryan,
analyst at consultancy Alfa Energy.
(Editing by Veronica Brown and Susan Thomas)