Coal news and updates

Shipping rates fall as China hydropower hits coal imports

Record production of hydropower from the Three Gorges and newer dams is displacing so much coal that rates to transport it have plunged to about record lows, roiling the shipping market.

Daily earnings for Panamaxes, vessels that are about 750 feet long and get most of their spot cargoes from hauling coal, slumped as much as 76 per cent this year, getting to within US$26 of a record low.

The mainland started hydroelectric plants this year with enough generation to replace 26 million tonnes of coal, or about 370 cargoes. The extra power means fewer imports and weaker freight rates, Morgan Stanley estimates.

While global shipments of iron ore and grain are rising, the mainland's decreasing appetite for imported coal is a challenge to transporters already seeing weaker rates because of an oversupply of Panamaxes. The economy's efforts to curb air pollution will help cut imports of power-plant coal by 2.7 per cent this year, according to Goldman Sachs, following average increases of 29 per cent annually from 2010 to 2013.

"Because of reduced buying of coal domestically, the price has fallen, therefore there's less incentive to import," said Georgi Slavov, head of raw materials research at Marex Spectron Group, an energy and shipping derivatives brokerage in London. "It's having an impact already."

Panamaxes were earning US$4,859 on Friday, according to data from the Baltic Exchange in London. Rates fell as low as US$3,362 at the end of June. The record low was US$3,336 in September 2012.

The mainland increased its hydroelectric capacity by 13 gigawatts in the first half, according to the China National Energy Administration.

China Three Gorges Corp, which built and operates the world's largest hydropower project on the Yangtze River, completed two more dams this year which, as of July, had 20.3 gigawatts of power-generating capacity. One gigawatt translates into about two million tonnes of coal a year.

Source: South China Morning Post/Bloomberg