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Australian Rains Swamp Profit at Germany's Coal-Fed Power Plants
2011-01-05 00:01:26.755 GMT
By Mathew Carr, Catherine Airlie and Lars Paulsson
Jan. 5 (Bloomberg) -- Profit from producing power from coal
in Germany, Europe's biggest consumer of the fuel, is headed
toward the lowest level on record as rainfall in Australia
closes mines and raises prices worldwide.
Returns at coal stations in Germany tumbled 39 percent in
the past two days to 2.54 euros ($3.38) a megawatt hour. That's
near the 1.79 euros reached on Dec. 20, the lowest since
Bloomberg began compiling the data in May 2008. European coal
rose to the most in more than two years yesterday.
The wettest ever September-to-November in Australia, the
world's biggest coal exporter, has put an area in Queensland
state the size of France and Germany under water, cutting
shipments by 73 percent, according to Macquarie Group Ltd. While
most of Australia's coal is sold to steelmakers, higher prices
are spilling over into Germany, where E.ON AG and RWE AG use it
for 18 percent of the country's electricity, and Britain, where
Drax Group Plc operates western Europe's biggest coal-fed plant.
"Queensland is an issue," said Tris Simmonds, the London-
based head of coal trading at GFI Group Inc., a New York-based
broker. "Further potential supply disruption is drawing out
tentative buying interest," driving up prices.
Coal for delivery to Europe in 2012 traded at $122.50 a
metric ton yesterday, the highest level since Nov. 5, 2008, and
closed at $120 a ton, according to broker data.
Price Hedging
The increase in prices has left the profit from turning
coal into power next year, known as the clean-dark spread, 81
percent lower than a year ago in Germany as of yesterday. It
reached a high of 20.01 euros in December 2008. The calculation
includes the cost of buying European Union carbon allowances.
While coal is being driven higher by the flooding,
utilities that use the fuel can hedge against the gains to
reduce their costs. Prices rose last year amid record demand
driven by China, the biggest energy consumer, with contracts for
delivery to Europe in 2012 jumping 9.6 percent.
European utilities "will choose not to lock into these
poor margins," said Angelos Anastasiou, a London-based analyst
at Investec Securities Ltd.
RWE, Germany's second-biggest utility, doesn't use
Australian coal at its plants and isn't yet able to calculate
the effect of the price increases, Martin Pack, an Essen,
Germany-based spokesman for the company, said yesterday. E.ON,
which uses coal for 34 percent of the power it produces in
Europe, had no comment yesterday, according to company spokesman
Georg Oppermann.
Length of Disruption
"We're not directly affected," said RWE's Pack. Any lost
profit will depend on how long the disruption lasts, he said.
RWE produced 24 percent of its power in 2009 from burning hard
coal. Lignite, a soft coal, accounted for 38 percent, according
to the company's annual report.
Drax uses about 10 million tons of coal every year at the
4,000-megawatt plant in Selby, northern England. The company
says it trades electricity as much as three years in advance to
protect against price fluctuations. A Selby-based spokesman
declined to comment yesterday.
Drax is "well hedged for this year and would have
increased its contracted position last December during the cold
snap, when power prices were pushed up," Anastasiou said.
"They'll be biding their time until margins get better."
The U.K.'s clean-dark spread for February dropped 50
percent over the past two days to 2.13 pounds ($3.32) a megawatt
hour. That's the lowest profit on next-month power generation
using coal since Nov. 26, according to Bloomberg data.
Lost Production
The rain in Queensland has left at least 10 people dead and
affected as many as 200,000 others. Officials in the
northeastern state declared a disaster on Dec. 28 as areas were
cut off. The disruption has cost the coal industry $1 billion in
lost production, the Australian Broadcasting Corp. reported.
These are "Old Testament-like floods" that will hurt
exports of coal and wheat, Dennis Gartman, a Suffolk, Virginia-
based economist, said yesterday in his daily newsletter.
BHP Billiton Ltd., the world's biggest miner, and Rio Tinto
Group have declared so-called force majeure amid the disaster,
allowing them to miss contractual obligations because of
circumstances beyond their control.
Australia shipped 259 million tons of coal for steel and
power in 2009, according to the World Coal Association.
Queensland's exports account for about 180 million tons a year,
about a fifth of the world's total, according to Sverre Bjorn
Svenning, an analyst at Fearnley Consultants A/S in Oslo.
"The impact on export volumes is still ahead of us," said
Emmanuel Fages, a Paris-based analyst at Societe Generale SA.
"The first price to increase is Australia."
Export-coal prices at the Australian port of Newcastle, an
Asian benchmark, gained 3 percent in the week to Dec. 31
to $126.10 a ton, the highest level since October 2008, said
Petersfield, England-based researcher IHS McCloskey.
For Related News and Information:
Coal Prices: COAL <GO>
Top Power Stories: PTOP <GO>
Technical Gauges: BTST <GO>
--With assistance from Robert Fenner and Ben Sharples in
Melbourne, Alistair Holloway in London, Nicholas Comfort in
Frankfurt, Alaric Nightingale in London, and Rudy Ruitenberg in
Paris. Editors: Mike Anderson, Steve Voss
To contact the reporters on this story:
Mathew Carr in London at +44-20-7073-3531 or
m.carr@bloomberg.net;
Catherine Airlie at +44-20-7073-3308 or
cairlie@bloomberg.net;
Lars Paulsson in London at +44-207-673-2759 or
lpaulsson@bloomberg.net
To contact the editor responsible for this story:
Stephen Voss at +44-20-7073-3520 or
sev@bloomberg.net
