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Asian power demand to drive up coal prices - Glencore

Henning Gloystein
Wednesday, 20 Nov 2013 | 5:10 AM ET

* Almost 30 pct of seaborne coal sold at a loss - Glencore

* Says booming Asian coal-fired power demand to lift prices

* Glencore to raise S.African coal production by 55 mln tonnes/year

LONDON, Nov 20 (Reuters) - Thermal coal prices will rise in the medium term as current prices force many producers to export at a loss and because booming electricity demand in Asia will drive up the market, said mining major Glencore Xstrata.

Thermal coal prices have dropped around 40 percent in the last three years as healthy exports from major producers such as South Africa, Australia, Colombia and the United States have clashed with modest demand following the global financial crisis.

Glencore Xstrata said that prices would have to rise as the oversupply forced many thermal coal exporters to sell at a loss.

"Current price levels are unsustainable in the medium term with close to 30 percent of seaborne thermal production being cash cost negative," the company said in an analyst presentation with clients.

"Exceptional coal cost competitiveness versus other fuel sources combined with continued strong demand from new generating capacity in Asia will drive higher prices in the medium term," it said, without giving a precise time frame.

Although China, the world's top energy consumer, is making efforts to shift more from coal-fired power generation towards using more gas, emerging markets in Asia are expected to grab some of that flow as they continue their race to industrialise.

Because of high natural gas prices in Europe and Asia, coal is more attractive as a fuel for power generation there than gas.

Only in North America, where a shale gas production boom has led to a sharp fall in domestic gas prices, can gas compete with coal on a large scale in the power sector.

To prepare for rising demand mainly in Asia, Glencore said it was expanding its coal production in South Africa by over 55 million tonnes per year between 2013 and 2021, spread over 10 projects.

The mined coal will be used for exports and to supply South Africa's power utility Eskom.

Glencore's South African coal production stood at 68 million tonnes in 2012, although the company said that only 49 million tonnes of this was saleable.

London-listed Glencore started trading on the Johannesburg Stock Exchange last week, adding to its other secondary listing in Hong Kong.

(Editing by Pravin Char)

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