Gas shortage drives cement makers to import more coal to fire furnaces.
Cement makers in the United Arab Emirates are turning to imported coal to fire their furnaces as gas is scarce and the petrodollar-fueled building boom shows no signs of letting up.
That is likely to drive world coal prices higher still, producers and traders say.
Home to the world's fifth biggest gas reserves, the UAE has failed to tap fields quickly enough to meet spiralling demand.
The construction sector has a double hunger for coal, used as both a kiln fuel for cement making and a raw material in the process.
While the UAE has bought only small amounts of coal during the past five years, cement makers in the emirates of Ras al-Khaimah and Fujairah are now asking for more.
Demand for South African coal for loading between July and December this year is unlikely to be more than a few hundred thousand tonnes at most, producers and traders said.
But, given the tightness of availability for the balance of the year and likelihood of continued strong demand from the Indian subcontinent and revived European demand in the autumn, even a small increase in UAE demand could push prices higher, they said.
Offer prices for South African coal cargoes have risen to $60.00 a tonne FOB Richards Bay from $47.00 in January on the strength of unexpectedly high Indian demand.
SOUTH AFRICAN COAL ALREADY IMPORTED
In the northern emirate of Ras al-Khaimah, some companies have already imported coal from South Africa to burn in furnaces, while others were thinking of making the switch.
"The companies are having to spend tens of millions of dollars on this," Ras al-Khaimah Gas Company (Rakgas) Chief Operating Officer Ruurd Abma told Reuters.
"They do need the coal. We are going through a tough summer for gas, just as we did last year."
Ras al-Khaimah Cement Company is carrying out a feasibility study on switching to coal from gas but hopes that gas supply will remain sufficient, a company source said.
Fujairah Cement Industries and Gulf Cement Co are already importing coal, traders said. Union Cement in Ras al-Khaimah will switch to coal in July, a company source said.
Ras al-Khaimah Cement, Fujairah and Union Cement sources said they were receiving offers of prompt handymax cargoes (50,000 tonnes) of South African coal but were seeking offers from a wider range of suppliers.
"We are facing a shortage of gas but also the price of fuel oil has been rising rapidly and it is cheaper to use coal," a source at one of the cement makers said.
"We need up to 80,000 tonnes for the year, we're not sure of the quantity yet," another cement maker said.
South African producers and traders said they had received more enquiries in recent weeks from UAE cement makers and had sold a few cargoes.
They emphasised that the UAE was, and was likely to remain, a very marginal market for them.
Gas supply comes under greater strain in the summer in the desert Gulf states as residents turn up air conditioning, increasing the call on gas-fired power plants.
The gas shortage in parts of the UAE will not be resolved in the near future, industry sources said. Imports from Oman have been slashed to almost nothing and government-owned Rakgas is struggling to replace lost Omani gas from elsewhere.