China Coal Cargo Rejection May Not Signal Market Turn, RBC Says

By Ben Sharples

July 9 (Bloomberg) -- The reported cancellation by a Chinese buyer of an Australian coal cargo during shipment may not signal a slump in demand from power-plant operators in the Asian nation, RBC Capital Markets said.

An Australian cargo is being offered after a Chinese customer pulled out of a sale, Reuters reported yesterday, citing unnamed traders. The product appears to be coking coal used by steelmakers that has been marketed as thermal coal, RBC said today.

Chinese buying has almost single-handedly sustained the international coal trade and prices, RBC analyst David Haddad wrote in a note to clients. Early figures for June suggest Australian exports to China will be another record, he said.

“There is not enough evidence to suggest that Australia’s record coal trade with China is over and the market in general remains bullish on this trade,” Sydney-based Haddad said.

Weaker global steel demand has let to “dumping and rebadging” of coking coal as power-station fuel, mainly by suppliers based in Queensland state, Haddad said.

Power-station coal prices in Asia may increase in 2010 because of higher demand from China, the second-largest energy- consuming nation, and supply constraints, UBS AG said July 6. China burns coal to generate about 80 percent of its electricity.

To contact the reporter on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net.