China sets world coal market on fire

China’s growing appetite for imported coal has lit a fire under coal prices and fueled deal making linked to the belief that the country, once a major exporter, will be a long-term buyer of foreign coal. China’s coal-importing binge started last year when international prices were low as a result of the recession while Beijing’s stimulus spending kept domestic prices relatively high. With coal the primary fuel for China’s economic engine, the buying is continuing even as global prices rise. China’s coal imports in March jumped 165% from March 2009.

The country’s growth amid the global economic rebound is already driving up a wide swath of commodities, including iron and oil. But so far—at least for coal—prices remain below the pre-recession highs of 2008. Still, in March, Goldman Sachs raised its estimates for global coal prices, with supplies of certain types of coal remaining tight through 2011 because there aren’t a lot of new mines opening soon.

In a quarterly report, the China Electricity Council, an industry trade group, recently warned that demand for thermal coal used in power plants would remain high for the rest of this year because of strong growth and supply constraints. More than 70% of China’s electricity comes from coal-fired power plants, and the country’s power-generating capacity is expected to expand 10% this year.