Coal market eyes growing China, India demand

As China tries to cope with what may be its worst power shortage in years, coal demand from the world's biggest consumer is likely to take centre stage at one of Asia's largest coal industry gatherings in Indonesia next week.China will face stiff competition for coal shipped by Indonesia, the world's biggest exporter of thermal coal, from India where demand for electricity is rising in an economy seen growing around 8.5 percent.

"With domestic prices rising so strongly -- they are basically on par with import prices now -- the likelihood of China being strong importers of thermal coal over the summer is extremely high," said Daniel Hynes, director of commodity research at Citigroup in Sydney.Chinese domestic coal prices rose to the highest level in more than two years last week as utilities stocked up ahead of the summer months, making imports more attractive.Chinese buyers have already been on the hunt for Indonesian cargoes as well as some Australian coal over the last few weeks to fill requirements.

If Beijing lifts restrictions on how much coal-fired power plants are permitted to charge more for electricity, as it has already done in some provinces, import demand could grow even higher as utilities burn more coal.Indian demand for Indonesian coal is also on the rise, and India's short-term and long-term demand is likely to be a focus."Over the last couple of months, you're actually seeing the share of India coal imports from Indonesia, increasing... India has made a lot of progress with imports, with year-on-year growth. People will want to see where they are at the moment," said one Indonesia-based analyst who asked not to be named.

Growing demand for Indonesian coal by India, to fill the widening gap between domestic coal output and demand, is likely to continue, the analyst added, resulting in intense competition between India and China for tonnage.Indian and Chinese companies are also seeking to acquire stakes in Indonesian coal mines to secure their supply, with Coal India , the world's largest coal miner, in advanced talks to buy up to 40 percent of Indonesian low-grade coal producer Golden Energy Mines for up to $1 billion, three sources with direct knowledge of the deal said.[ID:nLDE74P1TQ]

Although India is home to 10 percent of global coal reserves, it is plagued by a shortfall in local supplies as demand has grown rapidly with the increase in coal-fired power plants.