Chinese coal prices will rise to record this year, KGI says

Chinese coal prices will rise to a record this year as demand surges, according to investment bank KGI Securities Co.

China, the biggest producer and user of coal, became a net importer of the fuel for the first time this year. The resulting reduction in supply on global markets has helped push benchmark Australian prices at Newcastle Port to a record in August, according to data from the McCloskey Group Ltd.

"Coal prices are likely to hit a new high in the fourth quarter," Steven Liao, a Taipei-based analyst at KGI, wrote in a report Wednesday. "China's economy will maintain steady growth" and "coal demand is particularly strong in the fourth quarter."

Chinese spot prices for coal used by steelmakers rose to a record 813 yuan (US$108.24) per tonne in August, according to McCloskey. The price for coal used to generate power was last month just 3 yuan off its record, reached in February, the company's data show.

Huang Teng, manager of Beijing's LT Consultants Ltd, said coal prices were likely to peak in 2008 before falling in 2009 as mining companies expand capacity, and better port and transportation projects are completed.

China's economy grew at the fastest pace in 12 years in the second quarter, expanding at an annual 11.9%. Growth was powered by investment in factories and real estate.