Power use in China, the world's biggest coal producer, is rising 13 percent annually; utilities are building plants at a record pace. The nation gets 78 percent of its electricity from coal, spurring imports from Australia, Indonesia and Vietnam.
"The coal sector in China has undergone a change," said Mark Mobius, who oversees $30 billion at Templeton Asset Management in Singapore. Mobius says Asian coal prices may surge 42 percent in five years, bolstering China Shenhua Energy, the biggest coal company, China Coal Energy and Yanzhou Coal Mining.
Rising prices for the biggest fossil fuel after oil would drive power costs higher from Tokyo to London and benefit the mining companies Xstrata, Rio Tinto Group and BHP Billiton. Consumers like Tokyo Electric Power and RWE of Germany will pay more, hurting profit.
Annual coal contract prices in Asia may surpass all-time highs in the next 12 months. Deutsche Bank analysts led by Peter Richardson in Melbourne predict $58 a metric ton next year and $59.50 in 2009, from about $55.50 for the year that started April 1. Goldman Sachs Group of New York expects $56 next year.
Coal last traded at $54.50 a ton for shipments from Newcastle, Australia, down 16 percent from a peak of $63.10 in June 2004, the McCloskey Group, a coal consulting company in Hampshire, England said.
Goldman Sachs forecasts that higher coal prices will cause a 22 percent gain in the shares of Xstrata, based in Zug, Switzerland, the world's largest exporter of coal used in power plants.
Costs for shipping bulk commodities already are rising because of coal. At Newcastle, Australia, the world's biggest coal-loading port, a record 71 vessels sit offshore waiting to load because producers can't fill the orders fast enough.
The Baltic Dry Index, the benchmark for commodity-shipping costs, has risen 26 percent this year to 5,553, following an 80 percent surge in 2006 on London's Baltic Exchange.
China, which mines more than twice as much coal as the United States, the next biggest producer, uses the fuel to generate 622 gigawatts of electricity. Plants built in China in the last year alone generate enough power to supply Britain.
Si Posen, an expert at the China Coal Information Institute, said the Chinese have never had to look outside the country for the fuel since 10,000 years ago at the time of the New Stone Age, or Neolithic Era.
"People in Shanxi, now the largest coal production base, have been burning coal as fuel since then," Posen said in a telephone interview from Beijing. "China had been self-sufficient since it started producing coal."
But the government's closure of unsafe and illegal mines that killed 5,986 workers in 2005, or more than 16 people every day, is adding to the pressure on coal prices. Regulators shut 5,931 pits in 2006 and plan another 4,861 shutdowns by year-end.
China's purchases of coal in January exceeded exports by 1.4 million tons, the first time that happened, data from the Beijing-based General Administration of Customs show. While the trend reversed in February, the impetus for imports to rise is unstoppable. By 2010, demand may reach 2.6 billion tons, 270 million tons more than last year's output, the government said.
"We have been forecasting that China's exports will fall, and it has come to that, even more rapidly than we expected," said Clyde Henderson, a coal analyst at Energy Economics in Sydney.
Any turnaround to net purchases this year would come three years sooner than predicted by the Australian Bureau of Agricultural and Resource Economics, the government forecaster in the world's second-biggest exporter of thermal coal. Among the buyers is Datang International Power Generation, the second-largest Chinese power producer with a Hong Kong stock-exchange listing.
"Coal imports will account for about 10 percent of our total demand," said Bai Fugui, fuel procurement manager at Beijing-based Datang.