Coal futures in Europe rise over $100 a tonne

Coal for delivery to Europe next year rose above $100 a tonne for the first time as demand for the fuel increases and shipping costs jump.

The contract for delivery to Amsterdam, Rotterdam or Antwerp advanced $2, or 2 per cent, to close at $100 a tonne, according to broker ICAP. Earlier today, it rose as high as $100.45. Coal for December delivery rose 4.4 per cent to a record $108.

Power prices across the region are likely to rise, said Eoghan Cunningham, the London-based chief executive officer of globalCOAL, which operates an electronic coal-trading platform. Coal prices "depend more on the demand for power,'' he said today by telephone.

Front-month coal has surged 45 per cent in the past five months. Demand for coal burned in power plants reaches a peak during winter in Europe and Asia as households use heaters.

German baseload power for delivery in the three months through March 2008 rose as much as ¤1, or 1.6 per cent, to ¤64.25 ($90.51) a megawatt hour, according to prices from broker GFI Group. That's its highest since June 29.

Insufficient port and rail facilities at Newcastle, Australia, the world's largest export harbor for the fuel, have prevented Xstrata, Rio Tinto Group and BHP Billiton from keeping pace with increased demand in Asia. China became a net importer of coal for the first time this year.

"China and India are absorbing coal supply from Indonesia, South Africa and Australia "" coal that could potentially have alleviated the supply crunch in Europe,'' said Etienne Gabel, an analyst in London at ICF International, an adviser to governments on energy and environmental policy.

The Baltic Dry Index, an overall measure of commodity-shipping costs on different routes and ship sizes, added 0.2 per cent to 9,535 on October 5, according to the Baltic Exchange. It rose to a record 9,566 on October 2. Freight can account for as much as half the delivered coal price.

Coal suppliers may also be seeking to benefit while they can from laws in Europe designed to limit production of carbon dioxide, said ICF's Gabel. The second phase of the European Union emissions trading system, the world's biggest, runs for five years starting next year.

Factories and power stations will be granted most of their permits for free in that period, allowing them to use coal, which requires about double the permits compared with natural gas when generating electricity. Power utilities will charge higher prices for power, yet will receive most permits for free.

"Coal suppliers could try to capitalize on that windfall and grab some of it for themselves through increased coal prices,'' Gabel said today by e-mail. Competition in the coal market may limit their ability to do so, he added.

That type of response already occurs in oil markets, where European governments seek higher taxes on oil to lower demand and raise revenue, the analyst said. "Exporters react by raising crude prices and reducing government freedom to increase taxes,'' he said.